When Will Merchants Realize the Disruptive Potential of RFID?

Discussion
May 13, 2013

At the recent RFID Journal LIVE! 2013 conference, Bill Hardgrave, dean and Wells Fargo professor, College of Business, Auburn University, made the case that RFID is a much more significant technology than was thought 10 years ago. In 2003, he argued, the industry thought of RFID as a supply chain tool for pallet and case level. Since 2006, retailers such as American Apparel, Dillard’s, Bloomingdale’s, Walmart, Macy’s and J.C. Penney have found item-level uses. At least 19 of the top 30 retailers in the U.S are doing something RFID related, he said, with most engaged in phased deployment and others almost at full deployment.

Dean Hardgrave called RFID a disruptive technology; a game changer. Disruptive technologies often lack refinement at first, have performance problems, appeal to a limited audience and may not have proven practical applications. He likened RFID to other such technologies such as fax machines, e-mail, digital cameras, smartphones and even Amazon.com. They all provided lots of opportunity for payback, but were much riskier than incremental or even radical change.

One of the problems with RFID, he said, is that it was initially used in a supply chain setting, but didn’t have that great impact because retail supply chains were already pretty efficient. So, when used to "count things," RFID yielded only incremental benefit. Then, RFID began to be used for radical improvement, such as inventory accuracy, shelf replenishment, loss prevention, price change management and so on. Now, he maintains, RFID is becoming disruptive, as it is used to replace physical inventory counting, help prevent theft and improve food safety.

Eventually, Mr. Hardgrave believes, barcodes can be eliminated. So, the key to RFID success is not to use it in areas where you only need incremental improvement, but to think about what you can do with RFID that you couldn’t do before and set a goal of zero human intervention in some operations.

American Apparel has 254 stores and produces one million garments per week in downtown LA. Vice president of technology Stacey Shulman said the company has tagged 95 percent of all items in its stores. This allows the company to take inventory every day in all stores, reconcile POS and RFID counts daily, reduce out of stocks to less than one percent, improve inventory accuracy, reduce shrink, and lower staff turnover, as associates like working in a fully accountable store better. With antennas in store ceilings, American Apparel can scan 35,000 items in under an hour with 98 percent accuracy while eliminating the need to use hand-held devices for inventory.

Erin Limas, chief financial officer at Borsheims Jewelers (part of Berkshire Hathaway), told how the chain has been able to virtually eliminate shrink with tags that are small and cheap. With 88,000 jewelry, watch and gift items in stock in a single store, security is able to track items as they move around in the store and daily inventory now takes about 15 minutes per day.

Have RFID discussions been hindered because retailers have focused attention primarily on areas where only incremental improvement is possible? Where do you think the greatest disruptive potential for RFID exists at retail?

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13 Comments on "When Will Merchants Realize the Disruptive Potential of RFID?"

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Paula Rosenblum
BrainTrust
There is no doubt that RFID’s biggest disruption potential is exactly the way American Apparel is using it—replacing existing physical inventory processes (although ‘every day’ seems a bit much). The problem is, has been, and will continue to be the cost of readers, NOT tags. Physical inventory is about far more than just going up to a shelf and waving a wand (or gun, pick your metaphor). To do it right you need two things: 1) receipt cut-offs and 2) full store reader coverage. Until full store coverage is available, the question will always remain “What do I do with these counts?” No auditor in their right mind is going to let a retailer push those numbers through to the stock ledger—if nothing else it creates far too much volatility in inventory valuation. I’ve asked “how do you do this?” multiple times over multiple years to multiple parties and have never gotten an answer. I don’t see us building a new universe of “memo shrink,” nor do I see the industry allowing units and dollars to go out of synch. You’ve got to do it the way AA has described. So…bring down those reader prices and I’m sold for department… Read more »
Frank Riso
BrainTrust

When it comes to RFID in apparel department and stores, it is more a must-have then nice-to-have technology. I am not so sure it is disruptive, but it certainly is becoming the competitive advantage.

Ryan Mathews
BrainTrust

I don’t see RFID as a “game changer.” It’s just a technology that can do what other technologies already do, perhaps more efficiently.

Game changing technologies break rules, they don’t modify them.

That said, RFID offers some significant improvements in areas ranging from inventory management (shrink) to merchandising, but again, other technologies may do the same kinds of things—perhaps better.

Cathy Hotka
BrainTrust

RFID is absolutely a game-changer. Without very accurate inventory visibility, retailers won’t be able to provide ship-from-store capability. And it’s a given that retailers who don’t use it won’t be able to compete against direct competitors who have it. I’m not one to make many fearless predictions, but I’m absolutely convinced that this changes everything.

Karen S. Herman
BrainTrust

Dean Hardgrave is spot on in his assessment of RFID as a disruptive technology. RFID is currently being explored by designers as a way to promote brands through social media channels in creatively engaging ways. A great example is a recent event where Sunglass Hut gave RFID enabled wristbands to event attendees to promote sunglasses on their Facebook pages.

Sunglass Hut used a Pop Up Retail store format to launch this RFID social media campaign. Attendees were given RFID enabled wristbands that they registered to their Facebook profiles. When they tried on a pair of sunglasses they liked, they took a photo and scanned their RFID wristband to upload it to their Facebook page. The same photo was uploaded to the Sunglass Hut fan page. In one evening, 897 photos were uploaded.

The value of pairing RFID with a pop-up retail store format is that it can be relocated anywhere and promoted at a very low cost through social media.

The greatest disruptive use of RFID will in pop-up stores and mobile retail units. Promoting brands through social media channels will be a main focus.

Anne Bieler
Guest
Anne Bieler
4 years 6 months ago

RFID has the potential to help manage the store experience in real time. It is still disappointing to see retailers struggle with out-of-stocks and manage layers of data to work with suppliers to coordinate inventory management. Wouldn’t RFID systems be also be helpful in coordinating new product intros and promotions? As we write about so many retail topics, it’s often all about execution. I believe RFID can be useful at several levels of operations management.

James Tenser
BrainTrust

RFID is a very useful technology for some retail applications, but it’s no panacea.

Item-level tagging of some garments for virtual inventory purposes and television cartons for loss prevention makes sense. Fast-turning consumer goods, not so much.

Even in supply chain applications, when I read about “98% accuracy,” all it makes me think about is “how acceptable is a 2% miss?”

Tags are getting cheap, so I have little doubt that they will proliferate greatly. The more important question is, “How will shopper experience improve as a result?”

Martin Mehalchin
BrainTrust

In addition to the applications that the other panelists mention, I see a potential to use RFID for in-store pathing. Understanding exactly how their physical space is performing and what customers do and where they go when they are in-store is an increasing need for retailers and RFID (via tags in shopping carts for example) is one potential way to gather this data.

On a side note, I see American Apparel coming up a lot in discussions of in-store technology. They seem to be an emerging leader in these strategies.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
4 years 6 months ago

I have no idea whether RFID discussions have been hindered, but I do have a couple of observations. First, how about grocery, where out-of-stocks are a major bugaboo? OOS notifications in apparel are fine, but the movement velocity and sheer number of items in supermarkets dwarf the inventory control and lost-sales opportunities found in apparel.

And second, I hope that supermarket POS system providers are preparing to scan RFID tags along with barcodes. For those who would argue that “not all items in the store will have RFID tags,” please remember that it took nearly thirty years for all items in supermarkets to carry barcodes.

Bill James
Guest
Bill James
4 years 6 months ago
The retailers all watch each other, Macy’s watches Nordstrom, Target watches Walmart, Kohls and Penney’s watch each other. What they won’t tolerate is someone getting out in front of them, so they each pull and push their competition along. What they all want though is their share of wallet and try as they must they keep losing out to share of the mind. The customer’s mindset that is. I am getting more and more convinced that in order to win share of mind you have to execute on many levels as a retailer, not only in the store, but online, social media and right in their home when they are shopping away. Face it, there’s very little you can’t research online and often just buy it online without ever having to touch an actual store. Now if I’m a retailer and I want to drive my share of mind brand strategy on all levels, I have to have a robust set of systems that drives value to the customer all the time with near perfect execution. I don’t believe you can run an effective omni-channel strategy without RFID in the loop, the speed of the game is moving too fast… Read more »
Ralph Jacobson
BrainTrust

The supply chain is NOT as efficient as the article suggests. Also, RFID technology has advanced, to be sure, however, adoption is nowhere near “full deployment” anywhere in the world at the item level. Also, bar codes shouldn’t disappear because there will always need to be a manual way to look up an item’s price and other information if the RFID tag doesn’t work.

There is still a long way to go to get deep penetration in most formats of retail at the item level. I do see a path toward it in the next 10 years, however.

Janet Dorenkott
Guest
Janet Dorenkott
4 years 6 months ago

RFID is a game changer, but not just for inventory control. NFC (Near Field Communication) builds upon RFID technology and will take the in store experience to a new level. Shoppers will be paying their bill simply by waving their mobile device. The other big game changer will be QR codes, making it easier to stay in touch with the customer or prospective customer once they’ve left the store.

Alexander Rink
Guest
4 years 6 months ago

In terms of inventory control and supply chain management, RFID has become more of a necessity than a disruptive technology. It’s counterpart/subtechnology NFC is what will change the game in-store in the future.

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