Why AI Data-Driven Retail is the Future—and How to Get There

Merchandise assortment planning has undergone a major transformation over the past few decades—from manual processes and spreadsheets like Excel to various planning systems. Tech advancements in retail added some structure but many still relied on guesswork, labor-intensive processes and siloed data.

As the retail landscape became more complex (such as with the rise of omnichannel) and consumer expectations rose, the need for sophisticated tech solutions became even more pronounced. That growing complexity paved the way for artificial intelligence to transform how retail brands think about their merchandising strategy.

Why Retailers Still Struggle: Common Pain Points

Despite advances in technology, many retailers continue to face stubborn pain points leading to off-the-mark inventory decisions. Data is often fragmented and scattered across teams and systems, resulting in information overload without actionable insight. Adding to the challenge: the expansion of omnichannel operations, global supply chain disruptions, tariffs, market saturation, waning brand loyalty and more. The stakes are too high for patchy assortment strategies. 

In 2023, the fashion industry produced between 2.5 and 5 billion units of excess stock. That’s up to $140 billion in lost sales, according to Business of Fashion. Meanwhile, consumers are frustrated—brands are losing out on an average of 20 percent in monthly profit due to out-of-stock sizing, a shopper’s biggest complaint.

The AI Advantage: Balancing Art and Science

Retailers are increasingly turning to data-driven tools to overcome these challenges—and strike the right balance between demand, availability and profitability with AI-powered tools. A recent study found that 75 percent of fashion executives plan to adopt advanced analytics and AI to automate key processes, from forecasting to inventory allocation, in 2025. These proactive strategies are already delivering results for forward-thinking brands; they reported AI has improved stockouts by as much as 25 percent. AI enhances the art of merchandising and strengthens it through powerful data-backed insights. Creativity and brand identity still matter, but now they’re supported by real-time, data-informed decision-making.

Data-Driven Retail Decisions and AI-Powered Merchandising

AI enables a more agile, responsive approach to inventory planning. It processes vast datasets in real time, revealing insights that manual processes would miss or take weeks to uncover. Forecasting becomes more precise by analyzing historical trends at a granular level. Risk is reduced as production decisions are informed by what actually sells, cutting down on waste and markdowns. And with full visibility across channels, teams can better align around performance metrics for DTC, wholesale and ecommerce. A single source of truth empowers smarter collaboration across departments from design and production to planning and finance. 

As manual errors decline and efficiency improves with smarter planning, customer satisfaction rises. Meeting demand with the right products in the right sizes at the right locations ultimately drives profitability and strengthens brand performance.

Steps to Perfecting Merchandise Assortment with AI

Perfecting merchandise assortment with AI begins with smarter planning. Retailers must analyze past sales and behavioral data to uncover not just what sold, but why. AI uncovers deeper insights, including customer affinities and regional preferences, to guide more targeted assortment decisions.

Next, teams must align around common inventory goals, lead times and budget constraints. When all departments operate from the same playbook, planning becomes proactive rather than reactive.

Then, it’s all about placement, which products to put where, when. AI enables retailers to determine the most optimal localized assortment mix, determined by each SKU’s propensity to sell at each location, based on demand drivers like weather patterns. By combining push strategies, using preset rules like store size and sales volume, with pull strategies driven by real-time demand, retailers ensure each store has the essential stock.

Once inventory runs out, it’s time to replenish. AI also enhances replenishment strategies; when items sell, inventory can be shifted from other locations or reordered as needed. This adaptability reduces the risk of overproduction and keeps shelves stocked.

Continuous Optimization: Analyze, Forecast, Repeat

Assortment planning doesn’t end once the product lands in shoppers’ hands. AI thrives on continuous data feedback, improving forecasting models with every cycle. Over time, planning becomes more accurate, responsive and aligned with customer demand.

Perfecting your merchandise assortment with AI isn’t about removing human insight—it’s about unlocking its full potential. By turning complex data into clear direction, AI helps retailers thrive in a world where speed, precision and personalization are no longer optional—they’re essential.

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7thonline is a leading AI-powered retail planning and forecasting software, enabling more effective planning, demand forecasting and inventory optimization for leading retailers. With embedded business intelligence and rich analytics, the solution offers complete demand visibility and planning capabilities at the most granular level. To learn more about our suite of solutions, book a demo or email us at info@7thonline.com.