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Out-Law Analysis 4 min. read

Retailers: the opportunities of AI and virtual reality

High-street retailers have an opportunity to use new technologies such as artificial intelligence (AI) and virtual reality (VR) to enhance the customer shopping experience and drive sales at a time when footfall is still hugely affected after lockdown and the social distancing restrictions introduced to combat Covid-19.

The images of long queues of people leading into popular outlets in the days immediately after the reopening of the 'non-essential' retail sector show that many consumers remain committed to the high-street in spite of concerns regarding the spread of Covid-19 and the social distancing measures in place. This will have brought a level of assurance to retailers concerned about just how the coronavirus crisis will impact their businesses, with many shoppers still nervous to leave their homes and turning to online shopping.

The face of retail and how the public shop has arguably changed forever, and further uncertainties in the medium and longer term require retailers' consideration too – not least how the seeming acceleration of the shift towards more remote working and reduced occupation of city centre office space could shape the future of the high-street.

Retailers will therefore have to fight harder than ever for customers. Their challenge is to make the shopping experience as convenient and enticing as possible. This is not something retailers alone can fix –government and local authorities have a significant role to play in helping, whether through planning measures and greater levels of funding, tax breaks or incentives, or the provision of more flexible, open and attractive amenities and spaces. For retailers, though, now more than ever before is the time to explore how technology can help them meet the challenges ahead.

Many major retail brands, including L'Oreal, Amazon, ASOS and Boots, are investing heavily in new VR marketing tools which utilise AI technology. These tools, including the Zeekit app featured recently by BBC's 'Click' show, allow online customers to create a virtual model of themselves through their mobile or other camera-enabled devices. This online model can then "try-on" items such as make-up, hair colour, and clothing.

Some organisations are going a step further and seeking to develop 3D experiences involving video technology or virtual headsets, allowing the customer to have a more immersive and "real" experience – essentially enabling them virtually to "try before they buy" as they would do in store.

As the retail sector begins to adapt and embrace the use of such AI technology, so the law is likely to adapt too to address the new and significant legal and ethical questions that arise.

Retailers seeking to take advantage of emerging technologies need to be conscious of the intellectual property (IP) law framework and undertake due diligence to identify the owners of IP rights in the technology they wish to use so as to establish and agree any licensing conditions. In some cases retailers may consider investing in the development of their own technology or do so in collaboration with others – in both cases it is vital to consider how best to protect and harness the IP developed at the outset, including in the context of AI-led inventions.

In Europe, the regulation of AI is a central plank of the European Commission's digital strategy, with the prospect of new bespoke rules being developed around liability.

The move to personalise and provide for a more immersive retail experience using technologies like AI involves harnessing customer data in ways and in volumes that will not previously have been envisaged by most retailers. This requires retailers to be alive to their responsibilities under data protection law.

Retailers will be familiar in many cases with collecting customer contact and payment details, but the new types of data they may gather about customers from using new technologies could include highly sensitive information, such as body images and measurements, which would be classed as biometric data for the purposes of the General Data Protection Regulation (GDPR) – biometric data is one class of what is considered to be 'special category' data under the GDPR to which a higher standard of protection applies.

Retailers will need to think about how the data protection principles can be applied to these marketing and service tools and provide transparency notices to consumers, letting them know how their data will be used and how they can exercise their rights. Importantly, this processing of a consumer's data will also require their express consent. If the means of delivering this experience is provided by one or more third parties, then these entities will also be considered 'controllers' for the purposes of the GDPR – due to their autonomy in determining the collection and processing of such the data – and the consumer's consent to processing will also need to expressly extend to them.

Clearly retailers will be keen to ensure that the delivery of privacy messages and consent requests do not disrupt or distract from the customer journey, so careful consideration is required as to how to manage this within the legal requirements.

Where third parties or subcontractors are involved in the development, use or hosting of these technology solutions, not only do retailers need appropriate agreements in place to ensure clarity on IP, they also need to cover the responsibility for and ownership of data and to allocate risks and responsibilities for data protection compliance depending on the role of each party, be it as controller, joint controller or processor.

The penalties for failure to meet the data privacy legal duties are potentially severe for businesses, with fines of up to 4% of global annual worldwide turnover or €20million, whichever is greater, possible. However, a raft of guidance is available to help businesses, including recent recommendations the UK's Information Commissioner's Office and Alan Turing Institute set out on explaining decisions made with AI.

While there will be new issues and challenges retailers will encounter in adopting new technologies, businesses must embrace the opportunities those technologies present. Those retailers who adapt and change quickly and embrace AI and VR online and in-store will be best prepared to survive the immediate threats posed by the coronavirus crisis and keep pace with the changes we expect to see to the retail sector in future.

Nadia Zegze and Stephanie Lees are legal experts in the retail sector at Pinsent Masons, the law firm behind Out-Law.

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