Retail has officially entered its AI era. Some 91% of retailers are now actively using or piloting AI in their operations, according to Nvidia’s 2026 State of AI in Retail and CPG survey.
For most of them, AI has increased annual revenues (89%) and lowered overall costs (95%), materially impacting bottom lines.
But some retailers, like Etsy, are taking a different, more old-school approach to improve profits.
Generative AI remains the most popular application of the technology, providing services such as customer analysis and personalized marketing. However, agentic AI is rapidly expanding in the retail space.
Close to half (47%) of the companies that participated in the survey say they are now using or assessing agentic AI in their regular operations.
“For the first part of the AI era, the business conversation around AI was about efficiency. How do we improve a single step or a single use case? How can I make small changes to recommendations or improve my forecasting?” Carrie Tharp, vice president of Global Solutions & Industries at Google Cloud, told Forbes.
“We are shifting from the digital first era in retail to the agentic commerce era,” she continued. “This is where AI moves from a passive tool that offers prediction, to active, autonomous resources — an agent that can execute complex, multi-step, prescriptive actions across every consumer and operational touchpoint.”
Why AI is backfiring in commerce
Reliance on agentic AI may simplify operations for the company, but it can have a decidedly negative impact on the customer experience. Consumers report increased levels of algorithm fatigue and frustration with AI agents, factors that can actually deter them from engaging with a company.
Data from Akeneo reveals that just 45% of consumers trust AI recommendations. In addition, 38% are satisfied with AI agent interactions, and only 43% believe brands that tout their AI use are being transparent.
Overall, less than half (49%) say they are “somewhat likely” to keep shopping with brands that use AI to “enhance the experience.”
“AI will continue to deeply integrate into the digital shopping experience and eCommerce platforms, but it must be done cautiously and purposefully,” Akeneo CEO Romain Fouache said in a statement. “As businesses focus on delivering strong experiences and support, it’s essential that trust and transparency are built into the product experience as the foundation of a strong and loyal customer relationship.”
In light of the growing skepticism surrounding AI’s place in commerce, some retailers like Etsy are taking a different approach — betting on authentic human connections, not automation, to grow their bottom lines.
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Etsy’s loyalty struggle
From the beginning, Etsy has positioned itself as an alternative to the traditional e-commerce market. Its focus on handmade and vintage items appeals to a certain demographic of customer — one who is more interested in making a meaningful purchase than a quick one.
Among other things, meaningful purchases are often defined as those that align with a buyer’s principles and core values. As a marketplace for small businesses, it should have been incredibly easy for sellers to promote their values and find customers who share them.
However, Etsy’s reliance on its algorithms and AI suggestion tools haven’t always allowed for this, creating a sizable gap between the humans behind the products and those purchasing them.
“Historically, our systems prioritized what was most likely to convert in the moment, often favoring popular items over the ones that were truly tailored to a specific buyer,” Etsy CEO Kruti Patel Goyal told investors during the company’s Q1 FY2026 earnings call.
This focus on making a quick sale rather than building connections between like-minded buyers and sellers has kept Etsy from developing the loyalty that translates into repeat buyers.
In 2024, the platform reported a 6.8% decrease in general merchandise sales year-over-year, as well as a 2.6% decrease in active buyers. In 2025, things improved slightly in terms of sales, with year-over-year numbers increasing by 2.4% to $3.59 billion, but the number of active buyers dropped again by 3.4% to 86.5 million.
Etsy’s human-centric turnaround
The years-long drop in sales and shoppers is an issue Etsy is addressing in its turnaround plan.
“Part of our strategy… leans into what makes Etsy fundamentally different, human connection,” Patel Goyal told investors last month.
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“Buyers come to Etsy not just for what they buy, but for who they buy it from. This is one of our most defensible advantages and one that we haven’t fully delivered on.
“We’ve begun taking a more structured approach to understanding how seller identity, craftsmanship, and stories influence behavior,” she continued. “We now have early evidence that when we make those things more visible, buyers engage more deeply and make decisions with greater confidence.”
While this shift in approach is still in the early stages, Etsy says it’s already seeing benefits.
In the first quarter, the platform saw a 7.6% increase in revenue, year-over-year. It also saw a slight increase in active buyers, a 6.6% increase in reactivated buyers, and a 1.5% jump in amount spent by active buyers.
“For all the inventory we show them, we want to consistently highlight what makes that inventory really unique and valuable, really the human touch behind it that gives buyers confidence to purchase more,” Patel Goyal said about the company’s strategy going forward.
Etsy executives are, essentially, proposing a return to the company’s craft-fair style roots that made it a household name in the early 2000s. They’re banking not on AI and algorithms showing shoppers what to buy, but on human stories showing them who they’re buying from and what they’re buying into.
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