UBS Identifies Retailers Best Positioned as AI Agents Threaten Profit Models

The emergence of AI-powered shopping agents could be one of the most consequential developments for retail since the advent of e-commerce, and major U.S. hardlines retailers are positioned differently to navigate the shift, according to a new analysis by UBS.

Profitability, Not Sales, at Risk

UBS analysts suggest that as AI agents increasingly act as intermediaries between consumers and merchants, the most immediate threat is not to overall revenue but to high-margin profit pools. The report questions how retail economics will evolve when AI becomes the primary channel for customer interaction.

Specifically, AI agents could bypass sponsored search results and retail media advertisements, which have become crucial revenue streams for major retailers. This could redistribute spending as AI optimizes for efficiency and value, potentially eroding a key source of profitability for companies like Walmart and Target.

Key Attributes for Success

According to UBS, retailers with certain core strengths are better equipped to handle this technological disruption. The analysis points to several key advantages:

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• Scale and Fulfillment: Large-scale operations and robust fulfillment capabilities will remain critical differentiators, regardless of how a customer's shopping journey begins.
• Pricing Power: The ability to consistently offer competitive prices will be a major factor as AI agents compare options based on objective criteria.
• Genuine Differentiation: A unique value proposition, such as Costco's membership model, will become more visible and valuable as AI agents prioritize customer value.

Costco is highlighted as being well-positioned due to its strong value proposition. In the home improvement sector, Home Depot and Lowe's are seen as having defensive advantages because they offer installation services, technical expertise, and project guidance—value-added services that AI cannot easily replicate.

A Nuanced Outlook

For grocers like Kroger, the situation is more nuanced. While repetitive grocery shopping is highly suitable for automation by AI agents for tasks like weekly basket-building, the sector benefits from its reliance on complex supply chains. The need for fresh food selection and immediate consumption will likely continue to anchor consumer behavior in physical stores, according to the UBS report.