Regulatory orchestration in immersive retail innovation systems: A capability-based framework for AI and XR governance

Immersive retail technologies, including AI-driven personalisation, augmented and virtual reality, biometric and affective analytics, spatial computing, and metaverse environments, are transforming consumer experiences and retail innovation systems. However, they also pose systemic governance challenges related to data protection, algorithmic bias, behavioural manipulation, surveillance, platform concentration, and consumer vulnerability. Existing studies typically portray regulators as external rule-setters, compliance authorities, or providers of regulatory instruments, overlooking the organisational capabilities by which they influence innovation system dynamics. This conceptual paper develops a capability-based framework of regulatory orchestration in immersive retail innovation systems by integrating innovation systems theory, regulatory science, dynamic capabilities, and orchestration research. It identifies five regulatory orchestrator capabilities: sensing and sensemaking, experimentation and adaptation, co-creation and boundary spanning, orchestration and coordination, and reflexive learning and meta-regulation. These capabilities are enacted through regulatory sandboxes, audits, impact assessments, standards, codes of conduct, post-market monitoring, and cross-agency coordination. By linking these capabilities to knowledge development, entrepreneurial experimentation, legitimation, market formation, coordination, directionality, and reflexivity, the framework explains how regulators can reduce uncertainty, address knowledge and power asymmetries, and guide AI and XR retail innovation towards responsible and socially aligned outcomes. It therefore conceptualises regulators as active participants in innovation systems.