By Lee Kaplan, Associate
The rise of artificial intelligence ("AI") technology and its rapidly expanding capabilities are redefining how businesses operate and engage with consumers. AI is particularly intriguing to landlords and tenants in the retail real estate sector, given its capacity for analyzing and predicting consumer behavior. Tenants and owners of retail assets such as shopping centers and malls will soon be able – or may already be able –to use AI to comb through massive data sets of shopping center trips, customer online traffic, and retail transactions to provide valuable insights that drive business and profits.
However, the integration of AI into retail real estate begets significant legal considerations, particularly concerning privacy laws such as the California Consumer Privacy Act ("CCPA") and similar regulations.
AI in Retail Real Estate: Revolutionizing Consumer Insights
AI technologies are being increasingly employed in retail real estate to enhance various aspects of business operations. Key applications in the sector include:
- Foot Traffic Analysis: AI can analyze data from cameras and sensors to monitor and predict foot traffic patterns within shopping centers and malls, allowing retailers to understand peak times, popular areas, and shopper behavior for better resource allocation and store layout optimization. [How retailers can use AI to boost business (kyndryl.com)]
- Consumer Insights: AI can process vast amounts of purchase data, social media activity, and other information sources to provide deep insights into consumer preferences and trends. Retailers and retail property owners can use this data to tailor their offerings and marketing strategies more effectively. [AI's Impact On The Future Of Consumer Behavior And Expectations (forbes.com)]
- Personalized Marketing: AI enables highly personalized marketing campaigns by analyzing individual shopper data. Retailers can send targeted offers, recommendations, and promotions based on past behavior and preferences, enhancing customer engagement and driving sales. [https://www.bcg.com/publications/2023/exploring-the-implementation-of-ai-for-personalization]
- Inventory Management: AI can predict product demand by analyzing sales data, seasonal trends, and other variables. This helps retailers optimize their inventory levels, reducing stockouts and minimizing overstock situations. [https://www.sdi.com/resources/blog/how-incorporate-ai-supply-chain-drive-business-forward/]
- Dynamic Pricing: AI can analyze competitor pricing, demand, and other factors to adjust prices in real-time, ensuring competitive pricing to drive profits. [https://www.forbes.com/sites/neilsahota/2024/06/24/harnessing-ai-for-dynamic-pricing-for-your-business/]
- Space Optimization: AI can analyze shopper movement and behavior to optimize store layouts and product placements, enhancing the shopping experience and increasing sales. [Vallarta Supermarkets leverages AI for planning | Chain Store Age]
- Parking and Security: AI can utilize data from security cameras and license plate readers to optimize parking layouts and provide enhanced security for parking lots and other common areas. [How AI and Machine Learning Are Transforming LPR Tech - Security Sales & Integration]
Legal Considerations: Navigating the CCPA and Other Privacy Laws
While AI offers an enticing array of potential benefits for retail businesses and property owners, it also raises significant privacy concerns, particularly in states such as California with strong data privacy laws. CCPA and similar privacy laws are designed to protect consumer data and ensure transparency in how it is used. This requires some key considerations with regard to the use of AI in retail real estate.
Under the CCPA, businesses must inform consumers about the data they are collecting and the purposes of collection, and must obtain explicit consent if required (California Consumer Privacy Act (CCPA) | State of California - Department of Justice - Office of the Attorney General). This includes data collected through cameras, sensors, and online interactions. Retailers and property owners collecting data for AI analysis therefore need to ensure they have provided the requisite notice and obtained proper consent from consumers before collecting and analyzing personal data.
Additionally, under CCPA, consumers can request the deletion of their personal data and are entitled to opt out of the sale or sharing of such data. Therefore, landlords and retailers utilizing AI data collection and analysis systems must have proper procedures and mechanisms in place for accommodating opt-out and data deletion requests.
Businesses must implement reasonable security measures to protect consumer data from unauthorized access, theft, or breach (https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?division=3.&part=4.&lawCode=CIV&title=1.81.5). Data collected and processed by AI systems must be secured, and businesses should regularly audit their security practices.
Sharing personal data with third parties, including AI service providers, also requires clear disclosures – and in some cases, consumer consent. Therefore, businesses utilizing AI for retail insights must carefully manage relationships with third-party vendors to ensure compliance with CCPA requirements.
The integration of AI into retail real estate holds immense potential for transforming the industry, offering deeper insights into consumer behavior and enabling more efficient operations. However, businesses must navigate the complex landscape of privacy laws to ensure they are operating in compliance with the law. By educating themselves on the complexities of consumer privacy laws, retailers and retail property owners can harness the power of AI while safeguarding the privacy and rights of their customers.