AI in Retail and E-Commerce: Little Sister or Birth of Big Brother?
By Kelli Luu with Tom Kagy | 25 Apr, 2025

The highly personal data acquired through e-commerce, sometimes without consumer’s knowledge, can be used to influence far more than online purchases.

Transcript is listed below:

Tom Kagy (00:01)

Hello, this is Tom Kagy with Unconventional Wisdom. With me is Kelli Luu, who's today's expert on the use of AI in retail and especially e-commerce. Hi, Kelli.

Kelli Luu (00:17)

Hi Tom, thanks for having me.

Tom Kagy (00:20)

My pleasure. Okay, so tell me what are some of the ways that AI is being used in retail and e-commerce?

Kelli Luu (00:28)

it's totally being, it's been dominating the retail and e-commerce industry right now, right under our noses too, because especially after, since COVID, we saw a lot of the stores shut down and a lot of people started shopping online a lot. And I get it, it's convenient, but these sites are using AI for everything from personalized product recommendations to chat bots, to inventory planning, style suggestions, all the way up to fraud detection. So,

It's not really limited to just the online world. We have in-store tools as well, like facial recognition, smart dressing rooms, and also foot traffic analysis, which is really interesting to me because these stores are tracking exactly how many people are walking inside, where they walk to, what products they look at first. It's really cool.

Tom Kagy (01:18)

Wow, so you're saying that these stores are actually keeping track of people's faces and everything they're doing during each of their visits?

Kelli Luu (01:26)

yeah, for sure. are, with the facial recognition, they can even count how many times you've been in that store that month. It's a lot of that is how they detect, they keep track of their products, because you could now see if somebody is doing any kind of suspicious behavior, if they're like putting something into their bag, the cameras now can detect that and they'll highlight it onto the camera and you could make sure you are watching this person in the store.

Tom Kagy (01:54)

Okay, that's kind of verging on the creepy a little bit.

Kelli Luu (01:58)

A little bit, yeah.

Tom Kagy (02:01)

So I understand that they also use on e-commerce sites that there are virtual dressing rooms. Is that effective? Has that proven to be effective?

Kelli Luu (02:10)

Mm-hmm, virtual dress.

Kelli Luu (02:17)

Yeah, so virtual fitting rooms, think, are a really great idea when they actually work correctly. So there's studies that show that 67 %... It's a Harvard study that shows 67 % of consumers are more likely to buy online if they are given the option to see what it looks like on them. And it's great for boosting confidence, in my opinion, before you're actually purchasing something because you get to see what it looks like on your skin tone. You get to see what it would look like...

on your body. it's, I think it builds confidence a lot. But really they're not always perfect. It really depends on the quality of the technology that we're using. It depends on, it doesn't really take into, if the technology doesn't really take into consideration body diversity or even just proper lighting, it could be a bit more difficult to see if it's really misleading or not. But I still think that it gives boost of confidence to consumers.

And if you can boost confidence of 10 people out of every 20, I think that's a very good percentage of people.

Tom Kagy (03:23)

Yeah, well, 67 % boost sounds pretty impressive. How does that compare with in the actual, you in the real world?

Kelli Luu (03:26)

Mm-hmm.

Kelli Luu (03:32)

Well, in the stores in person, there's 70 % of people actually will more likely buy the item they trying on if they have the option of the fitting rooms.

Tom Kagy (03:44)

Wow, that's really impressive. So virtual fitting rooms are just about as effective as real fitting rooms in persuading people to go ahead and buy.

Kelli Luu (03:54)

Definitely, I'm sure the return percentage is a lot different than I think the return percentage is definitely a lot more online, but that's kind of what you're getting when you're buying when you're selling online, but in person I see a lot more customers keep something if they had already tried it on rather than bringing it back later and trying it on.

Tom Kagy (04:16)

Okay, but so I take it that as of now, these virtual dressing rooms aren't really able to adjust the images to fit the body types of the people trying it on.

Kelli Luu (04:29)

Yes, that's what I am seeing as the problem right now. like I said, even with just seeing that item, let's say it's a t-shirt and I get to virtually try it on and it's some bright blue color, I get to still see what that bright blue color can look like next to my skin tone. Even if it's not like perfectly fitting my body in the virtual fitting room, I can still see that color on my skin and I can make the decision whether or not I genuinely like that color on me or not.

Tom Kagy (04:59)

Okay, so it does achieve some of the effects or some of the purposes of an actual addressing room, but not all of them.

Kelli Luu (05:09)

Yes, not all of them. I think that if that can get improved, I think there would be a lot more success with buying online, especially getting that return rate a little bit lower.

Tom Kagy (05:21)

Well, do you think that possibly that distorted body image on the virtual dressing rooms might actually enhance sales? mean, after all, the average consumer doesn't have a perfect figure. So maybe seeing their faces on the outfit on a superior or better proportioned body might actually induce them to think that it looks better on them than it really does.

Kelli Luu (05:35)

Right.

Kelli Luu (05:49)

Yeah, I think it definitely can do that. You know, when we shop online and we're looking at a nice dress, the model is always a gorgeous, perfect body. that's what we're looking at that makes us buy it because we think that that's how that specific item is going to look on all of us. of course it doesn't. I think that just seeing that model online,

It sometimes doesn't always make the consumer want to purchase it because I think now in this day and age, a lot of consumers are really concerned about body diversity and they want to, they're looking for items that they know would look good on their body type. So that's another thing that consumers are starting to do. They know exactly what fits them, what kind of cuts are good for them, what necklines are good. just having that knowledge also helps with deciding on the purchase or not.

Tom Kagy (06:45)

Okay, so for the more discriminating e-commerce users, maybe that inaccuracy in depicting the body type is not helpful.

Kelli Luu (06:55)

Yeah, I would recommend them to just take a step into the story, get to try it out in the store.

Tom Kagy (07:03)

But I mean, aren't there tricks in the real world that also deliberately tries to distort the body image of the user or the prospective buyer?

Kelli Luu (07:13)

Yeah, there is actually these, they call them skinny mirrors and they actually make your body, like they make you lose a couple of pounds when you're in the fitting room, which is deceiving. I definitely think that's deceiving. I don't see the, as somebody who's tried them out before, I don't see too much of a visible difference.

I would say in the skinny mirror, can definitely see it when you're in the fitting room. You want to make the lighting better for your customer. You want to make sure it looks the best that you can. And I think, you know, if you have a mirror that could help out with that a little bit, it could definitely drive sales.

Tom Kagy (07:57)

Okay, well, that makes sense. I know that AI is being, of course, used in e-commerce to actually increase the number of purchases. mean, I'm sure it, you know, and I've seen it myself on, for example, Amazon. So, you know, so it's actually serving the e-commerce site, but does it...

Does it also kind of hinder the user? mean, is it actually a benefit to the user? Is AI a benefit to the user? Or is it kind of an imposition that's actually, you know, sort of forcing the user to spend more time than they might like on that site?

Kelli Luu (08:44)

You know, actually, I think AI is doing the opposite. think it's saving a lot of people time because it is personalizing your shopping experience. So it could really be both. could save time and waste it. But when it's done correctly, it's like having your own digital stylist that is recommending items for you. So it curates things that you really want to see instead of just scrolling through the irrelevant items or

when you go on, if you're just deciding to go on Amazon and you want to just do some shopping on it, but with the AI algorithm, it will show you things that you have previously looked at. It will show you things that you have previously bought. It will show you things that you've been searching on your web browser even. So all of these things that are going into it make it a very personalized shopping experience, which in my opinion would save time because you're not spending all of these hours looking for

a specific item because they're already showing it to you.

Tom Kagy (09:45)

Okay, I can see that efficiency as well. And I've actually experienced that myself when it has shown me things that I hadn't thought of that actually would go well with, let's say, a couple of the toys that I had bought for my grandkids. So yes, I can see that. But isn't there a downside in terms of the potential invasion of privacy in the data that's gathered by these AI systems?

Kelli Luu (09:59)

Mm-hmm.

Kelli Luu (10:14)

yeah, for sure. There is a lot of concern behind it with, I would say it's definitely gotten a lot more invasive nowadays because brands aren't being completely transparent. I'm sure a lot of us have gone online and seen the little pop-up at the bottom that says, accept the cookies. A lot of us disregard it and really on there, they're showing you're basically accepting the data collection.

when you accept these cookies. So when you accept these cookies, they are tracking things like where your mouse hovers, how long you linger on an image with your mouse, and even how fast you scroll through things. So if you scroll really fast past an item, the AI algorithm will track that and not recommend that item to you anymore. So it is really creepy when you're saying it out loud, but.

It tracks all of your purchases, your wish lists, even your abandoned carts. So it really is just all adding to a detailed profile of you. And that might sound stalkerish, but it's really just creating a personalized experience for you when you're shopping online. So if that data is not protected, it could definitely fall into wrong hands, which will lead to some problems. But that's why I feel like ethical AI is a must have and brands need to be setting those clear boundaries when...

people approach their website.

Tom Kagy (11:39)

Yeah, because obviously when people shop online, in fact, a lot of times they're shopping online because they're buying very personal products that they don't want to be seen buying by somebody at CVS or something. So, I mean, we're talking here about medical conditions, sexual predilections, all kinds of...

Kelli Luu (11:48)

Right.

Kelli Luu (11:55)

Exactly.

Kelli Luu (12:02)

Mm-hmm.

Tom Kagy (12:08)

what do call it? I don't know if they'd be called fetishes or they'd be called like vulnerabilities, but all of that is being recorded by a massive database. So yeah, it certainly seems like if it falls into the wrong hands, it could create some personal nightmares.

Kelli Luu (12:15)

Yes.

Kelli Luu (12:32)

Yes, definitely. And that's why I definitely am advocating for ethical AI when it comes to using it for retail purposes.

Tom Kagy (12:41)

Speaking of ethical AI, what about these voice assistants like Alexa and Siri and Google, know, Hey Google and all that. Are they actually listening to our private conversations even when we're not, you know, actually, you know, asking them to do things for us.

Kelli Luu (13:03)

You know, I definitely, I don't know the exact answer. I don't know the correct answer to that question, but I do think they are listening. I think it can, because if you say Alexa and she just, she answers you. So why wouldn't she be, she's trying to, in my opinion, I think she's trying to listen to see if you say Alexa or not so she can turn on, but she's still listening in some kind of sense.

Tom Kagy (13:21)

Bye.

Tom Kagy (13:31)

Right. So she could have been listening to and possibly recording anything that maybe Amazon has decided would be significant to learn about a consumer. for example, if you say certain words about certain products, you know, possibly Alexa could be recording that and getting some insight into what type of products you might be interested in buying.

Kelli Luu (13:48)

Yes.

Kelli Luu (13:55)

Mm-hmm. Yeah, and that's the funny thing with these chatbots too is like the more you do talk to it, the better it knows you. And the more it knows you, the better your experience will truly be because it is, like I said, it's like a best friend. You chat with it, you could talk to it, gives you advice, you can ask it questions. if it's not, like Alexa doesn't feel, Alexa feels like you can actually speak to it. She'll answer you, she'll do what you want and.

That, in my opinion, really does help your shopping experience because it's like having somebody, it's like having an assistant that really knows who you are. And the more you talk to it, the more it will just make your experience better when it comes to using anything online.

Tom Kagy (14:40)

Yeah, I guess it really boils down to whether Alexa is actually a trustworthy assistant or kind of an intelligence agent. exactly. Yeah. Okay. Well, is it possible for a consumer to opt out of the AI part of their e-commerce experience?

Kelli Luu (14:47)

Like a spy.

Kelli Luu (15:01)

Yes, some sites do offer the option. So again, like I said, when the cookies pop up, you kind of just want to get rid of it. So you're just going to click the button that you see first maybe. And usually that button that says accept cookies is a brighter color than the one that says decline. So even just that little box of color stands out to your eyes a little bit more.

leading somebody just to accept the cookies.

Tom Kagy (15:32)

Okay, now turning from the consumer point of view to let's say the entrepreneur's point of view, the point of view of someone who is actually interested in getting into an e-commerce business themselves. What would you recommend? Just like host their business on something like TikTok, which already seems to have quite an extensive setup of capabilities or?

Kelli Luu (15:48)

Mm-hmm.

Tom Kagy (16:02)

or would be better to launch your own e-commerce platform.

Kelli Luu (16:06)

wow. I love this question because I think TikTok Shop is amazing for anybody who is trying to start their own.

e-commerce business, no matter what it is. It could be a toolbox. It could be a t-shirt. It could be anything. And you can get built-in traffic. You get easy integration. There's just so many different tools on TikTok Shop that you could use that are AI based that will help you with your own business. So if I was building my own e-commerce business, I would definitely start on TikTok Shop. And with TikTok live streaming being so popular nowadays, I would have

I would just build up my TikTok shop. would be live streaming all the time so that I could just build awareness of the brand that I'm trying to build. in the long term, with the long term vision, if I decided to take it further than that, then is when I would turn it into a custom platform so that then you build the hype on TikTok and a consumer base on TikTok. And then you can directly direct, you can directly send them to your company website from your page. So.

I really think TikTok Shop is a great way for anybody starting out because it's social media is like the easiest way for you to get your name out there. And by doing it on TikTok Shop with lives, you can get traffic, you can get your name out there and you will still get sales as well. So you're still making money even at the beginning part of your journey.

Tom Kagy (17:31)

Okay, but what is the bite that TikTok takes out of your revenues?

Tom Kagy (17:31)

Okay, but what is the bite that TikTok takes out of your revenues?

Kelli Luu (17:38)

So as a seller, it depends on your product. It depends on the product and it depends on your own budget that you would like to connect with TikTok. But what they're doing right now is using a lot of content creators to even sell their product. So I have seen a lot of brands have their shop, their shop is set up and

they will reach out to micro influencers, mid-tier influencers, and they will send them the product. And from there, those creators, they can make a video and then they can add that product to their own TikTok shop. Their showcase is what they call it. A showcase is where you can just add a bunch of, if you're just a normal creator on TikTok, you can add a bunch of products to your showcase and you get commission off those products. So TikTok doesn't really take,

TikTok kind of just provides you a platform for it and most of their money on TikTok comes from advertising. So if you could want to advertise your product and you made a video for it, you have to boost that with TikTok Shop and you could pay for more views, pay for more website clicks, stuff like that.

Tom Kagy (18:50)

Okay, well it really sounds like there's no downside to starting on TikTok.

Kelli Luu (18:54)

I don't see it, you know, I mean, they did ban TikTok in January, but I don't see it going anywhere now, so.

Tom Kagy (19:02)

But with Trump's on again, off again.

Kelli Luu (19:05)

Yes, I really don't see it going anywhere. I think it's definitely the best place to start when it comes to launching e-commerce.

Tom Kagy (19:14)

Is there another platform or other platforms that are comparable or can compete with TikTok?

Kelli Luu (19:23)

In my opinion, when it comes to the live stream selling, no, I don't think there's a lot of other better. I think TikTok is your best bet when it comes to if you want to do live streaming. But if you want to create a website and a platform, Shopify is a great, amazing way to start an e-commerce business. Shopify does everything for you. It will print the shipping labels. It will...

do the product recommendation. It will show you what you should have on your website. It will design the website for you. So Shopify is a great way for somebody to start off if they want to create their own website.

Tom Kagy (20:05)

Hmm, okay. That's good to know. So you don't see any downside at all with, I mean, I don't want to keep beating a dead horse, but it's just that it's hard to believe, and maybe that's the whole problem with the U.S. government wanting to divest TikTok of its U.S. part of the business, is it's hard to believe that there's a platform that is so much better.

than existing American platforms.

Kelli Luu (20:36)

Yes, it's crazy, but they're doing something right, I think. And I don't think, well, at least as a user of TikTok, all the TikTok users, that will cause a very, very big outburst if TikTok were to be banned. A lot of people make money off of it. A lot of businesses run their sales only through TikTok shops. So there would be a really big outrage if TikTok goes away.

Tom Kagy (21:05)

Right. How reliable are some of these uses of AI in retail or e-commerce? I know that AI is used, you know, like to project the amount of inventory that should be produced, you know, that should be purchased or whatever. Do you have any sense of how successful AI is in projecting those kinds of things?

Kelli Luu (21:25)

Right.

Kelli Luu (21:33)

Yeah, so they're actually scarily accurate, I would say, but only if you have previous data. So if you're just, you know, opening up your business and you have no data to input into whatever AI system it is you're using, it's not going to create something personal for you. It's not going to create something that will work for you because it...

like any normal person who knows nothing about you. if you have data, so like let's say with Nordstrom, they analyze trends and the seasonal, what season it is and what items are going to be sold that season. And they don't only use the AI algorithms that they're using on their own website, but they're using things from.

TikTok, they're using things from Instagram. They're seeing what's on social media. These algorithms can see what's on social media. They can see what's getting likes. They can see what people are buying, not just from this business company, and it's from everywhere. So AI can pull from absolutely anywhere, which is why I would say it's pretty accurate, at least when it comes to predicting things, but you have to have previous data with it, because without that, it's just gonna...

create something completely out of the blue for you. But really, no prediction is 100%. But I think you should really trust your gut when it comes to using AI prediction sites like this. And I always say a mix of that AI and human intuition is what's really ideal.

Tom Kagy (23:11)

Okay. Now I know that one of the most common uses of AI are these chat bots that are accompanying every page on e-commerce sites. How effective are chat bots in replacing human staff support centers? mean, are they finding that chat bots actually do satisfy the needs of enough?

Kelli Luu (23:17)

Mm-hmm.

Tom Kagy (23:39)

consumers that it's worth annoying the rest of them? Or are they finding that there are so many annoyances that it may not be worth using chatbots?

Kelli Luu (23:50)

I think that really depends on what business we're speaking about. So in the sense of retail, I think a chat bot definitely will, can definitely help in a sense. I would say like if, like everybody wants somebody to tell them they look good when they're trying something on, you know? If you go shopping,

you wanna go out and you wanna ask somebody, like, you know, how does this look on me? If you have a chatbot and this chatbot is either it knows you and it's being either 100 % honest with you, it could tell you the honest truth. And genuinely, I don't think if a chatbot is telling you the honest truth, you'd feel any, if it says something bad to you, I don't think anybody would feel some type of way because it's just a chatbot rather than like somebody telling you that dress is not cute. But if you have this chatbot who is,

telling you like, yeah, you look good and this is a great product, this is awesome. Like, you know, it puts a little bit, like I said before, like confidence is very key when it comes to selling an item because you wanna make sure your customers have the confidence when it comes to this purchase. even that little ounce of this is a great color on you from your chat bot might push you to making that purchase more.

Tom Kagy (25:11)

Okay, so your answer seems to be yes, it's definitely worth, at least from the standpoint of the e-commerce sites, to use chatbots.

Kelli Luu (25:19)

Yes, and also, you know, if they're great for if if somebody needs help checking out online, they don't know how to check out if somebody needs help finding something specific and they can help them with that. So, yeah, I definitely think chat bots in the retail industry are helpful. I think they're more helpful in other industries, but in retail, can definitely be like someone's best friend.

Tom Kagy (25:43)

And I guess chat bots don't have some of the problems that human support centers have of people, you know, on extra long coffee breaks or, you know, speaking with, yeah, speaking with like such heavy, you know, accents that you can't quite understand what they're saying. Okay.

Kelli Luu (25:53)

Yes, you're not on hold for 20 minutes

Kelli Luu (26:03)

Exactly, exactly. So I know a lot of people struggle with that. Nobody likes waiting on the phone. Nobody likes being on hold. So a chatbot is the quick and easy solution to that.

Tom Kagy (26:13)

Okay. So it sounds like AI is able to handle just about every task of running an e-commerce site. Does that sort of make it possible for one person with a great idea to start a multimillion dollar company by himself or herself?

Kelli Luu (26:37)

Yeah, absolutely. AI can handle everything from product tagging to sending emails, replying to emails, tracking your analytics, and all the way up to even just tracking how many orders you have and sending out these shipping labels so that you can print them and get them to your clients. I like to say AI is kind of like a silent employee of every entrepreneur's dreams because it

will literally do everything for you. just, if you put in the details you need to give it and you take the time with the creativity part of using AI, then you could definitely run your own shop by yourself. It's so doable in this day and age.

Tom Kagy (27:24)

Well, it sounds like AI is more than one employee. It sounds like a handful of employees. And they never ask for raises or complain about the hours or.

Kelli Luu (27:27)

Yes, running everything for you.

Kelli Luu (27:35)

They don't complain about anything. Really, once you're running your own e-commerce business, think the only thing you kind of have to do is, depending on what site you're using, all you would have to do is just slap the label onto, or the tracking order, the shipping label onto the package and ship it out. That's really all these e-commerce business owners are doing.

Tom Kagy (27:58)

Well, I guess there must be a bunch of entrepreneurs looking to solve that problem too. Well, since AI seems to have become quite an effective agent for e-commerce and also is an extremely good.

Kelli Luu (28:03)

For sure, yes.

Tom Kagy (28:15)

sort of a intelligence agent. mean, somebody who's good at gaining a person's confidence and influencing their behavior, you know, getting them to take an interest in and buy things that they hadn't even thought of buying. What's to keep some e-commerce site from essentially taking over the world, you know? I mean, if you were...

Kelli Luu (28:18)

Mm-hmm.

Kelli Luu (28:30)

bright.

Tom Kagy (28:42)

If you were a, let's say a totalitarian government, could you do better than using the AI applications that e-commerce sites use?

Kelli Luu (28:54)

wow, great question. Well, a really big thing, I think the biggest problem, at least when it comes to AI in the retail industry is people really do want that in-person experience. And right now I don't think AI is really giving it to them. I think understanding like ethnicity even up to skin tone and body shape is

what I would prioritize if this was, if I was running, if I was running things around here, I would definitely be prioritizing that because that's where it gets even more personal than just what I like to buy or what I'm shopping for. That's really knowing who I am, what's gonna look good on me, what colors are gonna look good on me. And if AI can get to that point, then I think it could definitely take over those in-person experiences because

That's really what you're getting. You wanna see exactly what this thing looks like on my body. You wanna see exactly how this foundation blends into your skin. But if they are able to find a way to get that in perfect shape, it might be a problem for some of these in-person stores because you really can't compete at that point when people are just buying online. Nordstrom actually, they're...

Most of their business, 40 % of their business comes from online. So if they are able to even get that going a little bit more, like once it hits like 60%, then I think that's where people are gonna start having a problem. I think being more personal and just really understanding the consumer, not just as a consumer, but as who they specifically are is the most important thing when it comes to something like this.

Tom Kagy (30:49)

Okay, but hearing you talking about all these AI capabilities, I mean, of course, we've been talking strictly in the context of commerce, you consumerism, but it makes me wonder whether the same kind of applications or processes can't be used for.

Kelli Luu (30:58)

Mm-hmm.

Tom Kagy (31:10)

other purposes like, you know, political purposes, maybe to gain control of people's opinions and, you know, influence their votes or...

Kelli Luu (31:20)

Yeah, for sure. Even with just, I'm sure AI can decide, these body types tend to lean more this way, or these people in this skin tone, have these opinions. So it definitely can help. It could definitely help with advertising when it comes to the political industry. could help with all of that. And then again, like I said, even when you're in a political stance, you want to be...

You want to be very inclusive, I would say. You want to make people feel like you understand them. And if you can understand body shape, skin tone, ethnicity as somebody who is trying to serve retail consumers, then that's the best thing that you could do really, is just make sure that they feel like they're seen.

Tom Kagy (32:07)

Okay, well this has been a fascinating, very informative discussion. Thank you very much, Kelli. Okay.

Kelli Luu (32:14)

Thank you for having me.