AI Against Theft and Returns: How Start-ups are Revolutionizing Retail
This article was created with the help of artificial intelligence.
Key Takeaways
- Between 2023 and 2024, average shoplifting incidents rose by 18 percent, while threats and violence increased by 17 percent.
- 91 percent of retailers report increased aggression linked to thefts.
- Generative AI optimizes inventory in real time to avoid both lost revenue from insufficient inventory and wasted capital from overstocking.
- In fashion retail, virtual try-ons and personalized size recommendations reduce return rates by helping customers better determine fit before purchase.
- Generative AI has reached a maturity level where measurable impacts on retail profitability are evident.
Retail is struggling with a problem industry experts call the "silent killer": product returns and shrinkage. New applications of generative artificial intelligence are now set to tackle both phenomena – and significantly improve retailers' profit margins.
Two costly problems
Shrinkage – in industry jargon "shrink" – encompasses both theft and inventory management errors. The figures are alarming: Between 2023 and 2024, average shoplifting incidents rose by 18 percent. At the same time, threats and violence during such incidents increased by 17 percent. 91 percent of retailers report increased aggression linked to thefts.
Particularly problematic: organized retail crime, where coordinated groups deliberately steal merchandise for resale on online or black markets. In California, over 50,000 shoplifting incidents were reported in 2024 – a 12 percent increase from the previous year. However, 64 percent of retailers report fewer than half of the incidents to police.
The second major problem is product returns, which particularly burden profitability in fashion retail. Both factors combined have a direct impact on operating margin – a key metric for investors in evaluating retail stocks.
AI solutions in action
The largest and fastest-growing AI application in retail is inventory optimization. It addresses a fundamental challenge: too little inventory leads to lost revenue, too much ties up capital. AI systems analyze demand patterns in real time and automatically adjust stock levels.
To combat shrinkage, retailers increasingly rely on integrated AI systems that work not just reactively, but preventively. Instead of responding only after a theft occurs, these solutions analyze behavioral patterns and enable early intervention.
In fashion retail, virtual try-ons and personalized size recommendations are being used to reduce return rates. The more accurately customers know before purchase whether a product fits, the less likely they are to send it back.
Relevance for investors
Alphabet CEO Sundar Pichai introduced a new open-source protocol at a retail trade fair in early 2026, designed to enable AI agents for merchants. These autonomous systems guide customers through the purchase process – from product search to checkout.
For investors, what matters is this: generative AI has reached a maturity level where measurable impacts on profitability are evident. Retailers who implement these technologies early could gain competitive advantages. At the same time, tech companies like Alphabet benefit from providing the underlying infrastructure and platforms.
The shift from reactive to preventive, AI-powered loss prevention is likely to structurally transform the industry in the coming years.