Retailers Pursue Item-Level RFID
The radio frequency identification (RFID) bandwagon appears
to be filling up quickly. Several reports and press releases hit this week
expounding on the wonderfulness of item-level RFID and the number of merchants
that are seeing marked improvement in inventory management and sales as a result
of the technology.
According to research done by the University of Arkansas,
RFID has:
- improved inventory accuracy rates from an average of 62 percent to more
than 95 percent;
- increased the number of items that can be counted in an hour from 200 to
5,000;
- reduced out-of-stocks by as much as 50 percent.
"For perhaps the first time in retail history, retailers can fulfill the
promise of getting the right product to the right store at the right time for
their customers," said Professor Bill Hardgrave, founder of the RFID Research
Center at the University of Arkansas and dean of Auburn University’s College
of Business, in a statement. "This is thanks to standardized RFID technology
and the high level of inventory accuracy it brings."
A report by Stores magazine
cited a number of examples of RFID helping to improve performance. A test at
Dillard’s achieved an improvement in inventory accuracy of 17 percent while
time savings was pegged at 96 percent. American Apparel, which tags all merchandise
in its stores, reports 99 percent accuracy in inventory and a jump of 14 percent
in sales.
"Skeptics have tried for years to dismiss RFID projects as too expensive
or too complex, but RFID is now finally getting its day in the sun," Marshall
Kay, founder of RFID Sherpas, told Stores. "Proceeding with RFID
should already be a no-brainer for specialty apparel retailers. They have the
ability to accelerate more quickly than department stores because they have
much more control over their suppliers."
Earlier this week, GS1 announced
the founding of the Item Level RFID Initiative, which will bring together retailers
and suppliers committed to promote the adoption of item-level RFID in apparel
stores.
"The retail sector stands on the brink of a key technology shift, and
members of the Item Level RFID Initiative believe that now is the time for
the entire industry to move toward a more efficient system for manufacturing,
supplying, selling and buying products," said Art Smith, CEO, GS1 Canada.
Discussion Questions: Are there any impediments left to the adoption of
item-level RFID in clothing stores? Are there other categories where RFID
at the item level does or doesn’t make sense?
RSR is going to run two articles in our newsletter on Tuesday on exactly this topic.
While this is certainly an over-simplification, I have to say that what I have heard about RFID over the last 6 months has proven to me that item-level RFID for apparel for in-store inventory accuracy has practically achieved the status of “no brainer.” Just because we have operated in an environment where we had no inventory visibility for the entire history of retail doesn’t mean it’s a good thing. Inventory accuracy in the store through RFID can pay for itself. That’s the most important thing. But once you have it, what you can do with it, both in terms of retailer benefits and most especially consumer benefits, is even more exciting – and valuable.
Well, RFID still isn’t the cure for world hunger but I’ve always been intrigued by the opportunity (provided by item level RFID) to take cycle counts in stores and possibly eliminate the need for store physical inventories, much as bar code and locator systems eliminated the need for PIs in distribution centers.
Inventory accuracy is obviously nice, and there is obviously a dollar ROI associated with fewer out of stocks, but the ROI of eliminating physical inventories would be staggering.
However, this works best in an all-clothing store, most particularly specialty apparel. I’m not convinced the impact in large department stores/General merchants is as profound.
The privacy question still looms, but unless the media whips the populace into a frenzy, I think it’s less of an issue than it was 5 years ago.
The question is what are possible impediments and there are three.
The first is an reticence on the part of retailers to trust/invest in “new” technologies.
The second is the efficacy of those technologies–and in the case of RFID I’m speaking particularly about reader–technologies when they have to perform for long periods of time in the real world.
The third has to do with scale time and the answer here is political. If Wal-Mart announces tomorrow that effective 1/1/11 they aren’t accepting any apparel items that don’t carry unique RFID chips I assume the process will move along faster. But maybe that’s just me.
Seemed like RFID might never emerge from the distribution center and the “Trough of Disillusionment” (Gartner term). Adoption for item level apparel will accelerate and we can expect many more success stories pushing on two massive retail levels–inventory (in stock, sell through, etc.) and labor productivity (store task management). The phoenix is (finally) rising!
First of all let me say that I agree wholeheartedly that RFID in specialty retail is a no-brainer. Better and faster inventory control, lower shrink, reduced payroll, better customer service; what’s not to love?! Do I think it will be embraced? Not so much.
The problem is two-fold; first, no money. The budget for testing is infinitesimal compared to that required for implementation. And the second problem is change. Most companies are not open or able to change even when it makes sense. As Paco Underhill put it in “The Science of Shopping,” “Not every organization welcomes data, especially when it may disagree with long-held beliefs and traditions.” I know I sound like Debbie Downer but I’ve seen it over and over again; just because it makes sense doesn’t mean it’s going to be accepted or adopted in a big way.
In theory, item-level RFID for apparel/specialty retailer is pretty much a no-brainer. In reality, item-level RFID in these verticals has been a hot topic of discussion since approximately 2003, with the same basic benefits touted over and over. Everyone knows the benefits, the costs are presumably coming down every day, now retailers and manufacturers need to step to the plate and get it done.
RFID is a great solution for the right applications. It’s hard to justify for lower-priced product. Although the price of chips are coming down and readers/technology it still is an investment. If tied into security and theft the RFID solution becomes more valuable. For high-end apparel retailers it’s a good solution; for a Walgreens, not so much.
I have been dining with retail CIOs recently on this topic, and it looks like a juggernaut. Retailers are realizing huge operational benefits in addition to better in-stocks and quicker inventory. This is not hype–it is reality.
You asked for suggestions of other categories where the use of RFID at the item level would have significant value. I believe that any category where product perishability is of concern should consider the use of RFID at the item level to monitor expiration dates and to drive first expired first out business processes. In particular, I have spent a majority of my career in and around healthcare where it is routine to discard reagents, supplies, pharmaceuticals, and devices, unopened and still in their original packaging because they have passed their expiration date. It is a problem that can cost a healthcare provider and/or their suppliers millions of dollars in inventory shrinkage each year. The larger and more complex the institution the larger the problem tends to be.
Using item level RFID to monitor on-hand inventory as well as remaining shelf life will deliver much needed improvements to the quality of patient care and to the quality of the institutions financial bottom line while helping to rein in the escalating costs of delivering that care.
I think this is a great move for the retailers and I would love to see it also work for product return fraud and anti-counterfeiting.
I just finished writing an article for a retail magazine last week in which I put forth the idea that we are at a moment in time when retailers are faced with an inordinate number of technology choices. And the problem is that everything looks like an opportunity.
The key to sorting out the clutter is to return to the architecture of your brand. If your brand is all about convenience, efficiency, and low cost of operation, I think RFID is a strong consideration. If on the other hand it’s about a high-touch, service rich, personalized customer experience, I think there are other technologies that may be better investments.
I remember when RFID first came on the scene. Back then, just about everyone assumed that RFID WAS an item-level solution. When word spread that this wasn’t the case, a chorus of “Then why in the heck would I do it?” rose up, followed by a long period of RFID being framed as NOT being an item-level proposition practically by definition. Not insignificant series of attitude adjustments if you ask me. I think that, after the first “let down,” companies walked away and it’s going to take some work to woo them back to the benefits.
The RFID implementations in the apparel industry make all the sense in the world and have a much larger payback than supermarket or even drug stores. The simple cycle count approach enables store personnel to complete critical inventory procedures without much additional investment besides the tags. Recent efforts by GS1 to harmonize the coding schemes across barcode and RFID data carriers have made implementation much easier. And apparel is probably the most difficult inventory to maintain because of all the size variations within styles. It also suffers the most from OOS because if a size is missing it is likely the consumer will not try a different one.
To get the return from improved cycle counts only requires tags and a few portable readers. The labor savings and reduced OOS provide an immediate payback without a lot of backroom systems to monitor merchandise movement or lengthy supply channels. I don’t really understand the Walmart socks and underwear story, but the payback on suits or high end dresses and shoes makes sense. One additional sale because of an avoided OOS can pay for a lot of RFID tags.
While in hindsight, apparel seems like such a no brainer, I wonder what is next.
Look, if these results can be rolled out cost effectively throughout apparel retailing, what’s not to like? But from where I sit, we’ve had the technology to effectively manage store level inventories for a generation.
The issue, up until now, has not been the lack of technology but a lack of commitment to nuts-n-bolts store level operational execution. Throughout the industry, senior managers have not been willing to spend the money to hire, train and manage the people needed to make the available technology work.
The technology is a tool, not a ‘solution’. The solution resides in the day in and day out commitment to flawless execution by everybody involved in the handling and management of merchandise, from store level all the way back through the supply chain.
RFID has the ability to create even greater actionable item level/person insight that will make loyalty/CRM programs more profitable and engaging since we will be able to have significantly greater insight into the basket of goods, store travel patterns, etc. Yet used to the full potential, it is somewhat big- brotherish.
Always exciting watching innovation try to gain a foothold in a tough retail environment. I have to concur with Ryan and Marge, however, when it comes to a challenging acceptance with retailers in the lower end business such as mass and grocery.
Single category killer boxes can probably make this work on higher value categories. Are the mass guys going to accept one technology for some categories and not across the board? Perhaps.
The challenges of both benefit and acceptance remain for outlets than handle tens of thousands of SKUs across varied categories with varied unit values. These outlets have thousands of suppliers and they might not be able to afford to adopt the technology for one or a few retailers…even if their name is “Mart.”