When Agents Shop, Inventory Cannot Lie : Inventory Distortion Reveal

Hey everybody, thanks for joining today our webinar, When Agents Shop, Inventory Can't Live. It's really our 2026 inventory distortion reveal. 3 pictures on the slide, but you see a 4th person in the view. So we've got Lee and Jerry from IHL, and out of the blue, we've got Professor Daniel Goodwine. ASU, former Intel, former friends forever. We got claps going all over the place for you, Dan. We don't get the claps.

Claps.

We got claps for you. So Dan's going to join and tell us about the conference that he's doing. So real quick, tell us where you're from, please hit the chat. I know the first football game is tonight. The Cardinals play the, play the Panthers. I didn't want to put football in here because I have shudders this time. My body starts to hurt. That field I dislocated both my shoulders on when I played in high school. And worse yet, we lost the game. So my question for you today, our icebreaker is, have you ever skydived or done a bungee jump before? Let us know there. Have you done that before? Please let us know. I have skydived, but I've never bungee jumped. I always wanted to do that, but I always thought, hey, force equals mass times acceleration. I worried about my hips going out by the time I actually the bottom on a bungee jump there. So two events real quick we want to talk about. First up, Retail ROI Super Saturday. We just got the confirmation this morning that we're going to be back at Microsoft again. Favorite day of the year. We're going to do an analyst day. If you like this kind of content, we're going to be there. Retailers watching, if you just register, you actually give clean water to 500 people or first world education to 50. So Highly recommend if you can do that and join us early there. Carl, if you could throw the link in, into the chat, if people can't do the, the QR code here, that would be great. And then we've got another event and that's why I invited Dan in and what's going on with ASU. So Dan, it's all yours.

Hey, thanks Greg. And it's good to see some old friends from the industry and it's great to be here. I really appreciate the opportunity. Yeah. Hey, since leaving the high-tech world and working in the retail space, I am with Arizona State University, Go Devils, and we've got something special I want to talk to you about just for a few seconds here. By the way, if you're not familiar with Arizona State University, largest university in the country, the W. P. Carey School of Business, largest business school in the country. We do have a great presence in retail. As a matter of fact, FIDM, the Fashion Institute of Design and Merchandising, is now an Arizona State University school in LA. So we've got presence in LA and actually in multiple different states, but about 190,000+ students, around 24,000 are in our business school. And we've been ranked number 1 in innovation for the last 11 years straight since they started doing that category, followed by MIT and Stanford. And our business school, we've got a couple special things going on here too. If you're not familiar with it, I know we're talking about inventory challenges and issues today. Arizona State University, we do have the number 2 supply chain management school in the country. We think we're number one, but we're working on that report a little bit. But I've got some great folks in supply chain and I'm actually producing and hosting an event called the AI Enabled Supply Chain Strategy. It's a 3-day intensive on campus in Tempe, Arizona, October 5th, 6th, and 7th. And you can see the slides here and I think Greg will probably put these out a little bit later as well. But 3 days, you're going to cover AI and operations, AI and procurement. AI in logistics and exactly how it's working. Some folks have said, hey, I need to get a board-ready AI strategy. Yes, you'll get that. It'll validate it. You'll also learn from world-renowned professors, going to go to that. And, and also some industry experts. Many of you are going to recognize Finn on that slide. He'll be here with us doing some storytelling and some of his explorers and disruptors. And Janie Yu, many of you recognize Janie as well from LFX Ventures, working on talking about what's happening in the supply chain kind of ecosystem, where they're seeing investments. And then multiple faculty from our supply chain school will be teaching the 3 days. And the best thing about it though is this is a senior level supply chain intensive. You all get to network and sit around with multiple of your peers for the 3 days. Scan that QR code. It'll take you to the information page. I'll also put my email in the chat as well, and you just email me directly. I know this says register before July 31st and you get an early bird discount. And the pricing is $7,500 per attendee. If you don't get $7,500 worth of value back to your organization, call me and I'll make a promise for you or something. But what I'm going to do too today, Greg, just for letting me welcome you on that, anyone on this call, hit me up and just say Buzek or IHL, and I'm going to give you the alumni discount. So it's going to take it below that early bird rate anyway, and we'll get you registered. We're hoping to have at least 10 seats filled by retailers who've got Several is filled so far, and this particular cohort for October will be capped at around 30 attendees. We've got a handful of seats left, not many. It's really shaken up to be a great cohort. I'd love to welcome you to ASU and see some of my friends again and share with you all that we know about supply chain and AI. By the way, another thing about AI, it's a big buzzword. Just another first for Arizona State University since I am representing the school. We were the, the first in the country to offer both an undergrad and a graduate degree in AIB, AI in Business, and super, super proud of that. So you'll learn a lot when you come. You'll get a lot of cool tools and information, and I'd love to welcome you to campus here at Arizona State in October.

So I'll see you there.

Thanks, Greg.

Good deal. I'm gonna, we're gonna switch and the guys are gonna switch off their cameras here. Want to welcome in everybody on LinkedIn as well. Reach out to Dan on LinkedIn if you want that discount, or you can reach out to me. Me, and I'll connect you with Dan on that. So as always, we want to start wide. What's going on in the world? What's going on in the world economy right now? And let's start— look at retail sales right now. So you'll see this, there's multiple columns here, different months that everybody's reported their retail sales. So let's just go through the list and I'll give you a little bit of insight. Germany right now, current inflation rate is surpassing retail sales, so their net retail growth is actually -1%. The drought in Germany is significant and throughout Europe, having— obviously, you know about the fires. What you may not know about is the rivers are down significantly. In fact, they are actually blowing up parts of the river to get more depth so that they can continue the shipping of goods and services. So there's a supply issue that's happening not just in Hormuz and just not in the Red Sea, but it's happening for Europe. Actually through the river waterways in the droughts that are happening. UK is net positive. They've had solid growth every month, every month this year, for this year, and it goes actually back before that. So net growth is positive. France and Spain, who were booming, are really getting hit hard now. These fires are having a devastating impact on travel right as we go into the, the travel season. For Europe. And not only that, but just the overall economies have been stagnant. The fuel prices going up significantly have had a big impact. Italy in June was just barely net positive for things, but they have been hovering net about between -1 to 1% for quite a while. Poland and Hungary are the stars in the EU right now, doing very strong and doing really well. Poland in particular is getting that Ukraine consumer coming back and forth. So you got refugees coming in and out to buy supplies to bring back into Ukraine. That is helping their retail investment. China is next. If we go out to Asia, flat, they're literally flat right now in net inflation. When sales growth is only 1% in China, that's not good news. They need 5 to 6% growth there to show a growing economy. So the fact that it's at 1% is really a negative. Japan, we're gonna go into a little bit more. You probably heard about the yen crisis and what's going on. Already net negative in, in retail sales growth. But the yen against the dollar is a major problem. South Korea looks okay here in June. That all changed in July, and we're gonna talk about that here in a bit. Vietnam. Vietnam is the star of Asia. It's really the star of the world right now. The growth continues to grow because of the apparel business that has been shifted. Although we've got tariffs and we've got other things that are impacting stuff in Vietnam, overall fantastic. They are doing fantastic with retail growth and their economy is booming. Australia has been up as well, just positive in a strong direction, one of the stronger places in all of Asia. Brazil is struggling mightily right now. They have obviously, it's not, you know, non-public knowledge that they've aligned more with China, pulled away from the United States there, all that political stuff. But it is really starting to impact the net growth and the net retail in Brazil. Mexico as well started to see a growth slope in May. Expect that to go up. This is pre-World Cup, so I expect that to go net positive at least for June and July. And Canada's been strong despite all this back and forth bickering there and the fires. Canada has been strong through May and also got a World Cup bump. So let's talk about Korea. What's going on here? More than any other economy in their stock market, the Koreans leverage what they do. So margin calls is what happened. In fact, such a big margin call that the number of accounts equates to 3.5% of the adult population. That is what's happened in the last 2 weeks. It's been massive, and it's been a major issue that will impact retail going forward. To put that in perspective, when we had the Great Recession, it was between 1 to 3% of the accounts that were margin called. So this is a big problem for South Korea's retail environment as we go towards the holidays here. People leveraged on Samsung and SK Hynix, and as a result, that, that's biting them. So it's not unlike the situational awareness venture fund here, getting into the issues that they had with theirs and having to sell off to Ken Griffin and the Citadel for those funds. But major problem. The yen situation, the US has had to come in and help backstop Japan here. It went as high as ¥163.99 per dollar. There, and the US coming in has dropped it about 7 or 8 points. That being a big deal, when Japan was strong in the early '90s, the exchange rate was about 134. So it shows you how the Japanese economy has degraded against the US economy. Why this is critical, that means less money for the folks in Japan. It means they cannot buy imports without having huge expense. On the other side of that though, exports are strong, but they're competing with China on those exports. All of that plays into what's going on. We had to step in. This would've been a crisis that would've rippled through the economy because there's a lot of leverage that's been happening in the Japanese yen trade. And the difference between what's happening with the interest rates in Japan versus the US has created this incredible disconnect that is a threat to the economy. I'm not sure it's the what we saw with the leveraged debt in the Great Recession with real estate, but it's big enough that it was a good deal that we dove in to help there. So where are we with inflation? As always, if you follow us there, we prefer the Truflation CPI there because it's day-to-day, not 45 to 60 to 6 months delayed like the US number is. 2.26%. It depends on whether or not we're in a ceasefire or not because of where gas prices going up and down. That is a big part of this. Regarding that. And you, so at 2.2%, 2.26% is where we are. Certainly it's up. Certainly people don't feel it's only 2.26%, but that's what the data shows. The reason people don't feel that way is because of key categories. What's interesting here is all the healthier stuff is in most cases, when you get over to lettuce, lettuce was up 32% before the cyclospora. Problems there. Now we've got jalapeño peppers that are a problem that's devastating to those restaurants and industries. I saw a salad company shut all their stores as a result of this. Obviously Chipotle, Qdoba, and several other places are really struggling with their stuff. Taco Bell as well. Not that Taco Bell's healthy, but the other stuff. But you'll notice, hey, coffee's up. Expensive. Carbonated drinks are not up as much and juices are flat. So you see this unhealthy stuff there related to things, but it's in those categories of groceries where people see the inflation and that's what hits them the most. Gas prices, $4.08. We do this chart every time and it's just to show we're a good, what is that? 90, 93 cents difference from where we were a year ago. If we get peace, in the Middle East that drops like a rock. We'll see what happens with all of that. The whole thing being is that 1 cent equals $2 billion in or out of consumers' wallets as they go through. So as I mentioned before, whenever the government gives out money, like the One Big Beautiful Bill Act was this last case, buy oil stocks. And I said this a couple times ago, we've got the result. This is the earnings growth of the top 4 oil companies through the second quarter. Of this year. And I know there's been some political wranglings all about this. I don't know all the details of how they do things here, but once again, there always seems to be something when the government gives out money that there's something that moves gas prices higher and these guys take an inordinate share of that. But that ripples through the economy overall. I love this chart from Charlie Bilello. He does a great job on things. My, my, the funniest thing that I've heard is that AI is not helping the economy. And you, if you know us, we've been saying for years there's an inordinate opportunity for the largest companies to leverage AI tools to start blowing away their earnings and what's going on. This is the first evidence that we are seeing now, second quarter. This is not just AI though. This is tariffs. These are, so people raise prices, they're getting tariff refunds right now. All that doesn't quite get back to the customer. So that's a big part of this as well. But we're finally starting to see the increase in net profit margins due to AI. I know for ourselves, we just ran the numbers and we just calculated the numbers for us. We are seeing on average a 27 times improvement in our ability to, whether it's cost reduction or in terms of what we're able to do in terms of productivity through our AI tools, particularly in Sophia. Oh my gosh, our Sophia system. What we've been able to do is about a 300-to-1 impact in terms of the amount of data that we've been able to add and verify and qualify in our Sophia against 300 technologies. So if you haven't looked at our Sophia product in a while, you may want to take a look at that. That's probably the single biggest impact that we've had internally, but we're starting to see this impact with AI. That being said, highly recommend if you haven't seen Julie Abreu's article that was in the New York Times talking about AI washing and AI wishing in retail. Highly recommend that article. She did a fantastic job on that volatility. Really, this is like preaching to the choir. You guys know it. Hormuz represents 5% of overall tanker traffic, but 27% of crude, seaborne crude. And we're seeing 4 to 5 times the cost of insurance for any ships that are on the Red Sea. We talked about this last time. Grocery is getting hit pretty hard in a lot of different ways. The main mainstream grocery stores are struggling to surpass sales growth and volume growth. Volume is generally down overall. There's also impacts on Medicare this week. For anybody that follows Publix, who's private, the headlines are kind of a joke. The sales growth was modest. 1.5%, but their earnings growth was over 20%. I don't know anybody, any grocer that's complaining with 10.7% net income when grocery stores usually have 2% net income or worse. But that's what the press is picking up on and saying that the Publix is struggling on earnings. No, Publix is doing just fine on earnings, but sales growth was not as great this time. Jobless claims, it's the whole story is about long-term unemployed. That continues and sorry, am I— picture's in the way of the slide to see the latest. So I'll move that over. But as you can see, that is continuing to tick up, which is a long-term issue. That being said, we are seeing a rapid increase in people putting up their own shingles because of AI tools that they're able to do. Incredible amounts of new businesses that are starting now due to these AI tools. Households, how are they doing? Well, what's crazy is new cars. People are still buying new cars, but on average they're taking their underwater balance and pushing it into the new car loan. 30% of new car buyers were underwater, had negative equity on the car they were trading in now. And now 25% of all new car loans in 2026 are 7 years or longer. So the prices continue to go up. People still buying new cars. That perhaps shouldn't be buying new cars, and those loans continue to go up. So we shared this the last webinar that we did. This is just like a breakout of budget here of a 4-person household, and it's just show why the inflation hits in the minds of people so hard, that beef is a, a much higher part of the actual budget for most households than eggs are. So with beef going up eggs going down, it doesn't really cover the cost difference and certainly doesn't psychologically. Gas prices being up, that, those are big deal. Coffee being up is a big deal. So in the consumer's mind, inflation is, is, continues to be a huge problem as we go forward. I heard Scott Bessen talk about the K-shaped economy being over. I beg to differ. There may be added wages because of no tips. In terms of plumbers, electricians, and others that are doing data centers today. But if you're working a blue-collar job, you're working in fast food, you're working in many retail stores, you're working on a production line there, you may not be enjoying the same benefits of some of these other things our other jobs and occupations are. There is, continues to be a very big difference between the top earners and what they're spending in retail and what the bottom earners are doing. And this is— this goes with the whole government. For people that are on the government, on welfare and other things, those people are getting hit really hard. They're not able to get ahead. The more they are— and that's why this socialism push that's happening is so scary, is because these people never get ahead when they start relying on the government. For their earnings. And that's a big problem when it comes to retail in terms of retirement and other things as you go forward. So all that being said, that leads into, to retail here. And retail has been booming through June, and I expect it to be even stronger, or at least hold in July there because of the World Cup and the influx. This is actual credit card data. I think we're about 5 or 6 days from the new release of the July data for the NRF and CNBC Retail Monitor. Here, very strong. Category is very strong. We talked about the GLP-1 changing the dynamics in grocery stores. It's also changing the dynamics in clothing and accessories. Very strong growth, as you can see that grow over the last 6 months. Sporting goods and hobby and music lead up to the World Cup, very strong. I expect that to be strong again in July. I did want to point out the food services and drinking places. I expect the number in July to be strong, perhaps even up. Due to the World Cup. But if you'll notice that there, the difference— we had June, we had a strong World Cup influx there already. It was already down from May. So the restaurants and the food services are actually starting to hurt for the domestic consumption in the United States right now. And just keep an eye on that. And then the consumer spending of the wallet share of grocery. Amazon continues to take share. Walmart has been stable, has not grown. Traditional grocery stores have been hurt. Amazon is really kicking it into gear when it comes to fresh through their deliveries. We get offers every time, as I mentioned last webinar, hey, if you need bottled water, just order some fresh food from Amazon. They throw a frozen bottle of water in every trip and every bag. You end up having a case of water just by buying your groceries at Amazon. But the fresh is, the quality of the fresh items has jumped considerably. And that's starting to be reflected in the sales as you go forward. But we've got all of these different tariffs. They're on, they're off. That's creating this whipsaw that leads us into our topic on inventory here. Apparel tariffs between 15% and 54%. Electronics tariffs between 10% and 40%. 49% of retailers bought ahead for Christmas. So there's a lot more inventories that came in 1 to 3 months earlier this year for the holidays to try to avoid the tariffs, the new tariffs that got thrown on last week or so. The balance sheets, or at least the top line revenue lines, look good. The balance sheet doesn't look as good because all that inventory is there for a lot of, a lot of the retailers. So with that, I am going to bring Lee on and turn it over to Lee to talk about the 2026 study. All right.

Okay.

Right off the bat, that's a really big number, $1.7 trillion. And over the past 2 or 3 years, it really hasn't changed that much, but the composition of it has changed. There we go. That $1.7 trillion is split out in overstocks and out-of-stocks. Now keep in mind, the way we look at overstocks and out-of-stocks is fairly different than the way your retail systems look at it. We look at it from a standpoint of the customer experience so that overstock is any situation where the customer is spending to buy an item is getting at least a 25% discount. That's an overstock. An out of stock is a situation where they go into the store with money expecting to purchase, and then through whatever, for whatever reason, they end up leaving the store without buying for any reason other than price. Okay, so maybe the item's not on the shelf, maybe it's stuck in the back, the back office or whatever. Maybe there's nobody to help them find it. All kinds of reasons like that pertain to that. And this, this number, it's again, that's a worldwide number. That's the equivalent of the GDP of South, South Korea. Now we've been studying this for the past, past 20 years since Wharton came out with a study. And that study was the precursor to a lot of the stuff that we've done. And that was the the first real instinct that people had that the real out-of-stock problems were— looked very different from what the retail systems are saying they are. Here, this is the same data, only this time we've normalized it against retail sales. And if you look at, if you look at 2020 and '21, that's the spike there during COVID and it's come down since then. We're currently at 6.2%. That's 6.2% of retail sales. That's still a huge number. And what that means is even though we've got this improvement, there's still a lot of room that we can, we have room in which to move to make things better. And when you look at all the reasons that might be there for some kind of inventory distortion, by far the biggest is empty shelves. And whether those shelves are empty because of theft, either by the consumer or by the employee, whether it's just a miscommunication between management and the worker bees on the floor in getting shelf stock and so forth and so on. Whether it's an item that's not in, in the correct place, or whether it's a dress or some other outfit that's in a fitting room. All of these sum up to $690 billion on an annual basis. You'll notice spoilage down there. It's $170, right around $100 billion. The, the idea there is that that's something that is a really huge impact in some of the third world countries. It's an impact for us, but for slightly different reasons. There. It's mostly food. There was a data point that came out a few years ago for India that 40% of fruit and vegetables never make it to the market before they spoil. And that has to do with the lack of a cold supply chain, the treacherous roads. It has to do with all kinds of things that are in the infrastructure in that location. But here, here in the States, we do have spoilage. It takes a little bit different form. Like batteries have a shelf life, fashion has, has a shelf life, things like that. It looks a little bit different than, than it does in, in other countries. When we look at this again, this is the same data. This time we slice it according to the regions, and we've got the, by far the biggest problem is the APAC region, the Asia-Pacific region. And we've seen this, it's been pretty consistent over the years. What you're looking at for APAC and EMEA is a, about a 2-to-1 ratio between out-of-stocks and overstocks. And across the world, it's close to that number. North America gets a little bit better. Their numbers are a little closer. It's about 1.6 difference between the two. And then LATAM, it's 2.58. And that has a lot to do with the fact that financially they are not quite as well off as some of the other regions. So there's less opportunity to, for overstocks. Same data again. This time we split it according to retail segments. We're just showing some highlights here, especially soft goods. And department stores have had a really tough time over the past, oh, past decade or so. A lot of store closures, a lot of, lot, a lot of just operational issues, especially in department stores. So those numbers there, that, that is a percentage of retail sales, the 11.5 there for especially soft goods. That's the inventory distortion for especially soft goods. That's 11.5% of retail sales, more than 10% of retail sales. That's a big deal for those guys. And they're dealing not only with whatever supply chain issues are part and parcel there, they're also dealing a lot with the fashion, timing of fashion and so forth and so on. And especially with the, the kinds of things that Greg was talking about. People are buying ahead of time. That you just open the door wide, wide up for that, that kind of overstock problem in certain situations. When you look at the super segments, that's a 3, 3 down the, the last 3 things. You're looking at general merchandise, which includes specialty hard goods, soft goods, and department stores. So, you know, that number is gonna be high. Hospitality, we're talking about restaurants, lodging, entertainment. They're down at 5.7%. And FDCM, these, these guys are the stars. They're the ones that have really been working hard on their systems and their operations. To bring that number down as far as they can. And rightly so, they're the ones with the lowest margins of anybody that's on this list here. So they've gotta work really hard to make sure that they can keep the money that they earn. If you're wondering about how much things have improved since 2020, hospitality has been the winner. They've improved by 31%, or excuse me, 33%. FDCM is 30.9% and general merchandising only 14.6% improvement since— when you look at, again, the same day, exact same data, only this time we're slicing according to where in the enterprise these losses are occurring. Store operations, far and away the biggest piece of the pie you're talking about. And this is only one of the places where ORC has a big impact. The organized retail crime kind of stuff. Yes, it happens as a store, but it also happens as a supply chain. And sometimes it happens to the manufacturer as well. $298 billion. This is, it's almost $300 billion. And this is the kind of problems that arise through there being no communication between the various entities that we saw on the previous screen, between the stores and the headquarters, between headquarters and the DCs, between DCs and the manufacturer supplier. Goodness. We've harped on this for decades. Just, gosh, talk to people, communicate with them, get your point across. And make sure that it's one version of the truth that you're sharing with them. And that goes back to your systems. Okay. This, this data actually comes from the study that we do each year, the store experience study. And we asked retailers to tell us, what is your level of deployment for AI in some of these, some of these solution areas? And this is just a handful here, but, and most of this is AI/ML. It's not GenAI. What you're seeing is the 76% there for demand planning is 76% of those that have deployed AI in demand planning have received strongly positive results from the— as a result of their deployment. Okay. So that's what those numbers are showing there on the left-hand side. On the right-hand side, you see some of the effect of all that. The developers, those that have deployed it, are seeing between 2.3 and 2.5% sales and profit growth. Those are huge numbers. And that's it. That's in rel— in relation to people that had chosen not to deploy it. Okay. That's a huge deal there, guys. Largest technology separation yet recorded. This pertains to RFID and computer vision. 16 times for those that are, we classify as winners in, in, in terms of retail sales growth. We were talking about 10% growth or more for the previous year. Those guys are seeing 16 times the adoption of the, of the, the laggards, the folks that have not performed well. And that's, that, that's, you, you wanna talk about a K-shaped economy. This is driving it even more so in the retail realm. Expected RFID growth. This is us asking retailers, what are your expectations for deployment of this kind of technology? 291% growth over the next 2 years. Almost 300% growth. People that have deployed it already are gonna deploy some more. People that haven't started yet, they're gonna start dipping their toe in the pond. That's a good thing. Final bubble there, 8,000+ percent growth in computer vision. Now we've seen a lot of deployments for computer vision at, especially at checkout, especially at self-checkout. And retailers are getting a great return on, on, on some of that stuff. And then this is the expectations that they have going forward. I mentioned before that overstocks and out-of-stocks have a about a 2-to-1 ratio, overstocks to out-of-stocks, excuse me, out-of-stocks to overstocks. And basically you might think, why would I even worry about my overstocks? If out-of-stocks is such a huge problem, why would I even worry about them? Think about it for a second. That overstock represents a purchase that you've already made. It's already in your enterprise. It's maybe it's in the store already. Maybe it's in a DC or whatever. That is, that is cash that is already tied up in inventory. You cannot invest it. You cannot pull it out. It's there. It's already invested. You need to get those overstocks moved out of your system, whether it's through discounts for good material. If it's for, if it's for spoilage or something like that, then you need to get your operations in gear so that you can make sure that those things stay on the shelf longer, not at the risk of your consumers, but rather at the risk of, but rather making your systems more efficient to get things moved through the system quicker. $153 billion in buying and planning failures. That is not the biggest number for this chart, by the way. You're going to see that in the next, in the next bit. But again, this is buying and planning failures. We got overstock. Okay. Supplier issues, $203 billion in supplier issues. That buying and planning, there it is, second place, 153. This, you just can't ignore this. The spoilage, the number there is third. Again, third world, that's a big deal for us. Not so much, but in retail in this country, we need to get a more focus on some of these things. Almost everything's good news here. Here in the, here in North America, we are moving in the opposite direction. Now, this is not a long-term thing. A lot of this has to do with tariffs. A lot of this has to do with some of the whipsaw that Greg mentioned before, the, the whipsaw is simply this. If you got a brand new tariff in place, then you're gonna be buying ahead to try and get that stuff in hand so that you can actually sell it. When the tariffs are lifted, now it's okay, how do I clear this stuff out? It's really tough. You know, I mean, retailers have a tough, tough time without having to deal with politicians. The growth that you see there, that's all the green bars there. These, this is indication that there's a lot of effort being put and forth, a lot of progress being made. LATAM is doing great, but frankly, they had the biggest problem of all, you know, leading into this. So that's a big growth against a real, you know, a pretty small number. That's excellent all the way around. Long story short, we need to get the systems, get the operations in place, need to be able to communicate with our folks, not just at the headquarters, not just the stores, not just the DCs, but also our suppliers and manufacturers. And I'm gonna hand this over to Jerry.

Great. Thanks much, Lee. I appreciate it. Actually, it was a great segue, Lee, into politicians as we talk about compliance. And this actually, the, the next couple of slides comes on the heels of a new price promotion and markdown report that was just published yesterday. So I'm gonna be talking about some of the latest findings that surfaced from that. Honestly, I think anybody that follows this space is probably pretty aware of some of the latest legislation that, that started to surface up. We have legislation late last year in New York, California's the beginning of this year, and then Maryland on broad surveillance-based pricing. And for the European Union to not be outdone, in August of this year, there'll be an additional AI Act that'll take effect. And what we are seeing is really ongoing. I think it was pretty amazing. I looked it up and as of early this month, there are at least 40 bills in 24 states aimed at data-driven pricing. And the legislative arm, I think, has really begun to elevate quite a bit in the last year. We see it taking its aim peripherally at ESLs, and we're even seeing legislation that over the last couple of, of weeks and months aimed at potentially self-checkout. It's really an assault. It's really assault if you're a technology vendor. It's an assault on your livelihood. If you are a retailer, it's assault on your margin. And the reality here, without getting political, if without these technologies, again, there's not a single one of these technologies that's taking jobs away. It's repositioning labor. But what that's gonna mean if some of these legislative measures get invoked, it's gonna drive up labor. So if you're a consumer and you're on this slide, you're on this call, it's gonna drive up prices for us. So I think it means that everybody on this call is about to be affected by some of actually what's happening here. The good news is that market responsive pricing, that'll survive. Surveillance pricing will not survive. Things like loyalty programs, couponing, and temporary sales are currently carved out. In the legislation, but don't blink, that could be under attack tomorrow. Next slide, please. So one of the things that— it was funny, I was thinking, I first came on board with IHL in 2004, and one of the two very first program reports that I wrote was actually on the price optimization space. And way back then, you had a market and the focus was really around point solutions. But one of the biggest aspects of maturation that we've seen in the price promotion and markdown space is really from the move to point solutions to suites. And the, literally the va— we evaluated 9 vendors for our report and essentially the vast majority of those vendors either have a suite or are rapidly moving toward that suite. The opportunity is massive with our IHL WorldView IT Spend Model. We track the price promotion and markdown space. Currently, that's a $4.1 billion software opportunity market growing at 13% to 7.7% to $7.7 billion out by 2030. And then one of the big takeaways from one of the things that we're talking about here highlighting in our inventory distortion report is that you got, we're trying to get away from silo data. And that's really the silo data piece is why we're moving from point solutions to these integrated suites that holistically look at pricing from initial pricing to the promotion piece to the markdown piece. And clearly what retailers want to do as much as they can is sell as much product as they can at full price. In the actual report, got a screen capture here. I'll drop a, a hyperlink to our product page. We have 15 key takeaways for all the retailers on this call that may be looking at or in the market for a PPMO suite. We have 15 questions in the actual report, but I dropped 5 of them here for you. One of the, as I'd mentioned, the full lifecycle on the previous slide. How you, second key question is how do you identify and manage your key value and overall price image holistically? And one of the interesting findings is that fewer than about 30% of retailers have implemented dynamic KVI identification. And KVI could be something as simple as, hey, I live in Florida. So for me, maybe a key value item coming up to, we're almost perpetually summer here, but let's say you're in Ohio. Maybe in the summer you're interested in, you're interested in suntan lotion, but kind toward the winter, you're looking at winter coats and, and thick socks and boots. So those, those key value items are items that, that are indicative of a given retailer and what consumers look at as far as, hey, if the price is low on this item, it portrays an image that they're a low price leader. Next is how does the the system explain specific price recommendations. With the legislation that we have on board, pricing visibility is much more significant as we look at what role, uh, human in the middle plays both prior to AI and now with much more agentic capability coming on board. Traceability guardrails become even more critical, and the retailers out there that are making selections are going to need to really lean in heavily around this, this human in the loop and the guardrails around human in the loop when it comes to price promotion and markdown. And then the last thing I would wanna, wanna highlight is documented ROI and how do you measure promotional ROI. Again, what we found is up to 40% of promotions can generate negative or negligible return on investment once cannibalization and pull forward are counted. So with that, again, I'm just gonna drop the link into the report. I encourage you guys to take a look, shoot me an email, jerry@ihlservices.com, if you have any further questions.

All right. Thanks, Jerry. Thanks, Lee. Guys, why this is also critical on this inventory distortion is really Amazon and Amazon Prime. You have about 90 seconds when somebody comes into your store or tries to buy online before they start moving towards Amazon for that item if it's out of stock. This is a big issue that continues to get worse as we've locked up merchandise for the consumer walking in the store. That's moving more and more of the actual purchasing to click and collect and buy online, pick up in store, which makes it all the more critical. When we talked about the title of this webinar, we said, "When Agents Shop, Inventory Cannot Lie." That is really where we're going. With this. The, the fact of the matter is retailers are not ready for agents to be shopping, and they're going to be a big part of Christmas. I just, I recently did a presentation at an event, and I asked the room which percentage of their websites were optimized for agent use. Not a single hand went up, and that's going to be a problem when people are going to be shopping through ChatGPT or Gemini along the way. But It's not just on the online retail. It's the physical retail as well with Amazon Prime continuing to take share. So how do you do this? What is the formula for going forward? Number one's data integrity. Get your data right. Then being able to integrate that into a single view, a single version of the truth. Having accountability with your suppliers, being able to share that, getting that stuff in there. To decision intelligence and AI, like I said, Lee said, 2.3 times the sales growth. What that means is if you had 5% sales growth as the average, those using, deploying AI and decision intelligence were seeing about 12% sales growth in that environment. Profit growth similarly, that people that deploy in these disciplines on clean data following this path are seeing 2.5 times the profit growth for those that are not. And then finally, digital twins have become all the rage. Now and the ability to simply forecast error reduction by different decisions. Highly recommend now, guys, get your questions in for things. What we found out is the LinkedIn link just died about halfway through the session. So we do not have any questions coming in for LinkedIn, but we invite you to ask your questions. There is a link to the feedback survey and the contact information for all the IHL people and Dan. So want to invite the guys back on. Guys, fire away. What are we looking at in terms of questions there, Lee?

All right. First question, with the new pricing laws coming, are retailers about to lose the ability to price dynamically? I'll toss that to Greg.

You want that to go to me or to Jerry? Jerry, go ahead.

No, dynamic pricing is going to be allowed. That's not the problem. I think really the legislation is theoretically targeted at individual specific pricing. Again, you still can have loyalty pricing, you can still have couponing, you can still, hey, you can, if you have, if you've made an ESL investment, you can still run pricing overnight and change it. That's not a problem. It's the belief that, and what is attempted to combat is that the belief that certain groups may be singled out and disproportionately charge different prices based upon different reasons, whether that's geography or perceived socioeconomic status or whatever.

Okay. Let me dovetail that with this. The bigger issue for me is how the surveillance pricing legislation is being tied to ESLs incorrectly. ESLs and surveillance pricing are two totally separate things. Care to comment on that?

Yeah, sure. Greg may want to dovetail on that.

Yeah, I'll jump in on this.

I wrote a LinkedIn article about this a few weeks back. First, I think the industry has a PR problem, to be honest with you. The two are totally separate. And I'm neither pro-union or anti-union. I grew up in a union family. But the problem is you have very powerful unions that are shaping the narrative. The underlying science, the law of supply and demand, Labor shortages, profitability, those all fall counter to what the legislation is intended to do. I know Ricardo had a comment in there about, hey, they don't— they're targeting retailers. What about airlines and car dealerships? It's really a point well taken. I think it's— if you follow— I've always thought if you follow the money, then it answers the question. And I think in this instance, follow the money and follow the lobbyist, and that answers the question.

Yeah, it, it definitely does. The airlines are already heavily unionized, but so this type of pricing is accepted. We hate it, but it's accepted and nobody's going after it. But we're now starting to see that in the retail environment because, oh, by the way, we've got Amazon and Walmart taking up a larger share of, of the shopping dollar in con— in basically in states that tend to be more unionized. But they're doing a fantastic job on the messaging with politicians and the general public and the mainstream press for sure on that. So that's the reality of it.

I think one of your best proof points is to look at Europe. You go look at the ESL penetration in Europe and it's far beyond where we're at in North America. You go look at SCOPE self-checkout penetration per total lanes, it's on par with North America. Yet if you go look at the, the percentage of the population and especially food workers that are unionized in North America and you compare that to Europe, Europe is significantly higher. So what, in a heavily labor-organized geography, it's not perceived to have had a negative influence on employment.

So yeah, no, no retailer in their right mind is doing surveillance pricing for goods and services. It's just, it's stupid. It's suicide to try to do that in your market. With this level of competitiveness. Pricing changes overnight because you've got competitive pricing. Yeah, absolutely. But customer-by-customer pricing based on somebody's demographics, that's just, that's false. It's just false.

Okay.

I'll grab this one. Everyone talks about empty shelves. You're putting $588 billion on overstock. Why should a merchant care about that number? As I mentioned, that represents funds that you've already invested in inventory, there's nothing you can do with that. You can't invest it. You can't, you know, develop new technology. You can't hire more people. That's the biggest aspect there. You guys got anything to add to that?

Yeah, I would just say I wanted to highlight that this, this industry has made incredible improvements in the last 5, 6 years in terms of inventory accuracy and what's going on. Had it not, had not been for all these supply chain shocks, particularly in North America, there would be huge gains. We're seeing it in the percentage of same-store sales. I wish the number wasn't $1.7 trillion because it's been that way for 3 or 4 years. But when you have sales growth, and sometimes spurred by inflation, that is superseding the speed at which you can reduce the problems at the point of sale, then you have theft and other things locked up, other issues. The numbers just come out roughly the same at the top level. Oh, they're underneath is completely different.

Yeah.

Yep. This is for all of us. Does China's retail sales decline make them more prone to be aggressive and maybe invade Taiwan or more agreeable, increase trade opportunities?

Yes. I don't know. I don't think it has one iota, or it makes one iota difference as to what China does. With Taiwan. I don't think this piece in their economy right now, I don't think it has any difference, makes any difference.

Yeah. The person that asked the question said, I asked Copilot already and it said it could go either way. Yeah.

We're as smart as Copilot, it sounds like.

Yeah.

Yeah.

I don't think it makes any difference. I don't think it has any impact whatsoever.

Okay.

Did you see the question from Eric?

I can't find that one.

Yeah, Eric posed a question. He said, Jerry, what do you think the legislator will do on AI decision-making liability? Who'll be held responsible for AI mistakes? The retailer, the tech company, or the AI model provider?

The retailer.

It's, it's how many lawyers are in a room is how they answer that question. But no, I think fundamentally I agree with Greg that they'll go after the retailer first, and then the retailer will have to decide how good the contract is. Between them and the AI, them and the technology provider, and then cascade beyond that, the technology provider will have to figure out how good the contract is written between them and the large language model provider. I see lawyers making a lot of money off of this.

Yeah. Everyone says they're doing AI. What separates the retailers actually getting results, and what does that mean for the holidays?

So the difference is the people that started earlier and their data is in order and, and they have their websites are now agent ready and they've made those changes or are making those changes as we go into the holidays. I think this is gonna be the single biggest separation year that we are going to see for retailers that win or lose during the holidays due to this separation. As I mentioned earlier, Some of the things that we're seeing on, on average, 200 different projects, 27 times the return on what we're doing, stuff rooted into our company brain by doing this. My recommendation to people is you may or may not wanna buy Palantir stock, but you sure as heck should buy the stock of the customers that are using Palantir stock because they are doing things. So I haven't even checked if any retailers are using Palantir. We are data rich, wisdom poor, have been for ages. And the opportunities that are there to get data aligned into a single data lake and start applying AI to that are just enormous for large retailers. And you can't afford to be slow in those two areas before deploying AI. If you— and the thing that's been most concerning to me is how many people that are performing badly and don't have a single data lake and haven't done the data work data lakes, thinks that AI is gonna solve their problems and it's not, it's gonna kill 'em.

Yep. Yeah.

I don't know if people fully grasp how disruptive Agentic Commerce is really about to be. It's, we're starting to see it dip into the store and it impacts every interconnected system into the store. And I don't think most technology stacks are ready for that far-reaching impact. There is time. There's gonna be a spool up this and next year. And again, we have a free report you can download that shows and talks about the knee on that. But by the end of next year, you'll start to see more effects progressively, but the curve is gonna take a really significant upturn at the end of next year and gonna be immensely disruptive. I don't know if my colleagues on the call share my belief, but I think I believe it has the potential to be just as disruptive as the cell phone had.

I think it's more. I would disagree. I think it's, I think it's way more than the cell phone.

Yeah.

The last question I got here is what actually changes when an AI agent is doing the shopping instead of a person?

Yeah, it really has to do with the AI doesn't look for substitutes. It looks to see who has it and it moves on because it's set on a goal to do that. One of the leading-edge things now I just saw last night is a gauntlet loop, setting Claude on a gauntlet loop for something. And what that does is spin up agents and then other agents evaluate whether or not those agents are doing the work and did it successfully there. If you haven't played with Buzz, highly recommend you start playing with Buzz that Jack Dorsey reached out on. But all of that to say, there are these enhancements that are occurring in a massive way. And they can be occurring in large scale, just like they are at small scale, but it definitely is based on how good your data is. And, and Julie, like I said, Julie Abreu nailed it in her New York Times thing. It was like, when I read that article, it was almost like a TED Talk in terms of how succinct and how accurate it was. It was just really fantastic.

I lied. Last question. Where is PCI on Agentic and who is going to cover the disputes on credit?

That's a big unknown. I suspect it's going to be, it's going to be based on where your PCI compliance is as you as a retailer and the networks. I think the bigger issue is going to be, are we finally going to see blockchain and other crypto things become the norm for agentic commerce there in the future? I don't have a good answer for you there, Eric, on the PCI side of it. I haven't delve deep enough into it to get an answer, but it's going to happen and things are changing. I have to do a presentation at the end of September for a group that's not a tech group and they want the slides a month and a half before on AI.

It all changed.

It's going to change 3 times before then. What can I tell you? But that's key. And I'll send this out there again. If you guys haven't created personally for yourselves your second brain, do it. It is massive. It's, it's a big enhancement in what you can do personally.

All right.

All right, guys. Thank you so much. I apologize again to the LinkedIn people. Everything was working fine. Everything's live. I look over to my right and it says stopped when I got done with my, my part of the session, but we're grateful for you guys joining. Always join through the IHL link, do the registration. That's the way to get us all the time. Guys, once again, join our next session, which is going to be in 3 weeks from yesterday, the AI Reality Check: What Retailers Need to Get Right Before Scaling AI. We talked a little bit about that. We're going to have Dell and Connexion on that to talk about edge computing and what that means for stores. Please join us. There's the login and we'll be sending this out to you later. Thanks so much, everybody. Have a great day.

Take care, guys.