The U.S. retail sector is undergoing a major transformation as artificial intelligence (AI) and automation reshape the employment structure.

According to a report by UBS, the deployment of technologies such as artificial intelligence, machine learning, computer vision and robotics is beginning to touch all areas of the retail industry, from supply chain management to customer service.

Approximately 10% of the U.S. workforce works in retail, with 65-75% of those employed in customer-facing roles.

By June 2025, total retail employment is projected to be approximately 15.5 million, down from a peak of 15.8 million in 2017. Retail employment as a percentage of total nonfarm payrolls has been declining since 2016, reaching a 25-year low of 9.8%.

UBS notes that automation has begun to replace repetitive tasks such as floor cleaning, inventory scanning, and employee scheduling. Fulfillment processes are becoming increasingly automated, while machine learning tools are being used to improve demand forecasting.

Customer-facing roles are also changing, with AI-powered chatbots becoming the first line of contact for many service issues.

"While technologies such as 'Just Walk Out' cannot currently be deployed in an economical and scalable manner, this could change in just a few years," UBS analysts led by Michael Lasser said in a note.

Large retailers are adapting faster. Walmart (NYSE: WMT ) is using AI and machine learning to automate its supply chain and grow its top-line revenue without adding staff. UBS estimates that this could result in significant labor cost leverage.

"We estimate that if WMT experiences wage inflation averaging 3%, it could gain about 40 basis points of leverage on the labor side alone over the next five years," the report said.

Kroger (NYSE: KR ) is using computer vision to optimize staffing at checkout counters, while Home Depot (NYSE: HD ) is reinvesting automation savings into front-line service.

However, adoption of advanced technologies varies widely across the sector, with initial deployments primarily concentrated in non-customer-facing areas.

UBS noted that long-term changes in customer-facing roles may be slower because they require a shift in consumer behavior. Currently, only 20-30% of Sam's Club customers use the "Scan and Go" feature, highlighting the challenges of mass adoption.

“Interacting with humanoid robots trying to check out customers or provide shoppers with directions on how to find products won’t happen overnight. But it’s inevitable,” the analyst said.

In UBS's view, the retail sector is at a "tipping point." Retailers with larger, more intensive workforces, such as Walmart, may be better positioned to benefit from automation, both through cost savings and productivity gains.

AI is also becoming a core part of business strategy, not just a technology tool.

UBS noted that companies like Walmart are creating executive roles specifically focused on AI, such as executive vice president of AI acceleration and executive vice president of AI platforms, a trend the bank expects to continue across the consumer sector as AI takes center stage at a strategic level.

It also highlighted sales per employee as a measure of labor productivity. Companies including Costco (NASDAQ: COST ), BJ's, and Warby Parker (NYSE: WRBY ) have seen strong growth in this metric since 2021, highlighting the efficiency gains from technology adoption.

At the same time, macroeconomic conditions may be accelerating the shift toward automation.

UBS expects inflationary pressures to intensify, which could weigh on consumption as real wage growth slows. This could prompt retailers to rely more on labor-saving technologies to offset profit pressures.