This guest blog is written by Mr. John Johnson. He is the editor for RFID 24-7. You can find some very good RFID articles there. This blog post goes deep inside the out-of-stock situations causing retailers loss in sales worth millions.
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RFID 24-7 here.
Early this year I blogged about my shopping experience at a Clark's retail store
in Massachusetts. At the time I figured that the chain's inability
to quickly locate inventory in its back room was costing Clark's up
to $15 million a year in lost sales.
I never thought I'd come across an example that screamed for item
level RFID more than the need for Clark's to gain better visibility
into its back room inventory, but the Champs Sports chain has
trumped my experience at Clark's.
Out-of-stocks seem to be a major
issue at the Champs Sports retail chain
Out-of-stocks seem to be a common occurrence at the 552-store
retail chain Champs
Sports, and could be costing the retailer more than $6 million
in lost sales from t-shirts alone.
Shopping for a birthday gift for a teenage nephew recently, I came
across a Derrick Rose t-shirt, who so happens to be my
nephew's favorite basketball player. The perfect gift!
To my dismay, the six shirts remaining on the Champs sales floor
were all size XXL. That's right - no small, no medium, no large, or
no extra large. By not deploying item level apparel tagging, one of
the largest mall-based specialty athletic footwear and apparel
retailers in North America is missing a major selling
Out-of-stocks average about eight percent for retailers in
general, although the rate is higher for specialty apparel
retailers because their depth of SKUs is typically less than large
The particular shirt I was interested in retailed for $30.
Figuring that four customers were likely turned away that day
because their size was not available, that's $120 in missed
revenues for that single shirt - for one store.
Intrigued by this, I began to check some other shirt styles. I
came across another SKU that only had XXL in stock, adding another
$120 or so in lost revenues due to an obvious case of poor
I am sure that this problem is not unique to the Champs store in
Braintree, Mass., where I was shopping. According to the Champs
Sports web site, the retail chain operates 552 stores in the U.S.
Assuming that the chain's inventory visibility is poor
chain-wide, and that the out-of-stock issue is commonplace across
all stores, some simple math suggests that the retailer lost
$66,240 in revenue in one day from one SKU (552 stores x $120). I
was unable to determine how many SKUs Champs stocks, but the store
is notorious for its large selection of wildly popular sports
shirts and apparel items.
If the Derrick Rose t-shirt out-of-stock problem was repeated at
just 10 other stores (remember, I found two out-of-stock SKUs in
minutes), the lost revenue jumps to more than $660,000 chain-wide.
Increase the out-of-stock problem to the 100-store level and you're
potentially looking at $6.6 million in lost revenues from a single
Bill Hardgrave, the dean of the College of Business at Auburn
University, says that the retailer likely lacked depth for the
Derrick Rose SKU or it wasn't merchandised properly. "What you
experienced is not at all uncommon," says Hardgrave, "especially in
the apparel side, where out-of-stocks are even more common. Some
specialty retailers will only have one or two items of a particular
color or size on the floor. Then the out-of-stocks get exaggerated
because if somebody buys that large and the system inventory is
inaccurate, then they don't even know that they don't have that
size on the sales floor any more."
Here's the scary part: if the out-of-stock issue is out of
control for t-shirts that sell for about $30, imagine the lost
revenue on the sneaker side of the equation, where some brands at
Champs retail for as much as $250, like the Nike Hyperdunk+
high-tech sneakers that track how high you jump and all sorts of
Derrick Rose shirts like this one featured on the NBA's star's
website might be costing Champs Sports more than $6 million in lost
sales from out-of-stocks.
If just one size was out-of-stock for a sneaker at that price
level across all 552 stores, the lost revenue would equal $138,000.
Certainly, Champs must see the value of placing an RFID tag on a
$250 pair of sneakers.
Hardgrave, who is also the founder of the University of
Arkansas RFID Research Center, says that specialty stores like
Champs and Clark's are expected to be the next big adopters of item
level tagging. RFID can be an immediate fix for out-of-stocks
caused by poor store execution, meaning that items are in the
store, but not on the store shelf. Hardgrave says that 30 percent
of out-of-stocks are caused by store execution, while 70 percent
are caused by supply chain issues.
"The most immediate thing RFID can help is the store execution
part of the problem," says Hardgrave, "when it's in the back room
and nobody realizes it. That's exactly why Walmart and others are
using RFID to tag jeans and other items. They can go out on the
sales floor every morning with handheld and cycle count everything
on the sales floor in a few minutes, and the application will say
there are six SKUs that are in the back room but are not
represented in the count you just took on the sales floor.
Therefore you make sure that those SKUS are a priority because they
are not on the sales floor. RFID fixes that problem immediately and
While action at the department store level is strong, specialty
retailers like sporting goods stores or specialty apparel boutiques
are honing their item level tagging strategies, which can vary
strongly from large department stores.
"While some department stores roll out store by store or by
product category, the specialty store strategy will be to tag
everything," Hardgrave told RFID 24-7 last month.
"They can do that much faster than a major department store can,"
since a specialty retailer might carry between 15,000-35,000 items.
"They will tag everything and roll out chain wide. On one hand it's
a simpler model, but it also requires much more due diligence on
the front end because you are not just rolling out one or two
categories, but hitting the entire store."
Meanwhile, retailer American Apparel remains bullish on RFID. In
its earnings report released earlier this month, the troubled
retailer identifies RFID as a major part of its turnaround
American Apparel, a vertically integrated manufacturer,
distributor, and retailer of branded fashion-basic apparel, announced financial results for its second
quarter ended June 30, 2012 on Aug. 14.
In its earnings report, American Apparel said that about half of
its 251 stores have deployed RFID technology. It identified RFID as
one of the more significant tactics the company is employing to
improve sales and profitability, including implementing tighter
inventory management systems enabled by the technology.
American Apparel's RFID-enabled stores operate at a 99.8 percent
inventory accuracy rate, almost unheard of for an apparel chain
with such varied SKUs. That could easily contribute to the
double-digit sales gains that are mentioned in the earnings
This April, the chain announced that RFID had an unexpected side
effect. By attaching UHF tags to about one million pieces of
apparel a month, American Apparel has reduced shrink by an average
of 55 percent. Some locations curtailed theft by as much as 75