RFID is changing the make, store and ship revenue model for good. The technology can enable 99% inventory accuracy, which can impact the bottom line by reducing out-of-stock (OOS) situations, drastically reducing inventory-related sales losses.
Author: Carl Michener
According to some studies, 47% of fashion apparel in Europe is
sold at discount-and OOS shares a big part in the blame. If
products aren't on the shelves, they won't sell right away. And
unlike wine, fashion items don't get better with age: they require
According to Patrick Javick, VP Strategic Accounts Management at
GS1 US, fixing inventory accuracy is the number one element that
justifies RFID investment in retail. Studies in Europe and the USA
demonstrate that, despite what non-RFID retail systems actually
show, inventory accuracy in retail averages 63% in the U.S. and 75%
in Europe. Causes include inaccurate registration of goods, not
enough EDI information, human error in counts and replenishment,
incorrectly marked products, and shrinkage.
It's understandable that inventory accuracy and cycle counts
continue to be the biggest factors driving adoption, and the ROI is
most certainly there. The technology has proven so effective, in
fact, that American Apparel has equipped all of their stores in the
United States, Canada, Mexico, Europe, Asia, South America and
Australia with RFID tags on every item. Their inventory accuracy is
high, but they realise that RFID has many more benefits to retail
than simply keeping products on the shelves and bringing efficiency
to inventory counts. It's what high accuracy enables that's the
The rise of omni-channel
A jump in accuracy into the high nineties-99% at Germany-based
Gerry Weber and 95% in Wal-mart's RFID categories, for
example-changes the picture from a revenue point of view, a
customer satisfaction point of view, and also gives retailers the
confidence in inventory numbers to do things they have never done
"When you use RFID to bring inventory awareness to such a high
level, it gives retailers vastly increased visibility into their
entire network of suppliers and distribution centres," says Jorma
Lalla, CEO of Nordic ID, a Finnish manufacturer of RFID mobile
computers. "You can make a lot of improvements with that kind of
data. Outside of OOS prevention, omni-channel is the first thing
that comes to mind."
Omni-channel is the ability to leverage all channels to fulfil
sales. On the front end it's a seamless, consistent customer
experience regardless of how customers shop-in the store, from a
computer, on a mobile device, or through a catalogue. On the back
end, retailers with a fine handle on the existence and whereabouts
of every item they sell can leverage that knowledge to reduce
storage, shorten cycle and delivery times, offer customers new
options like local store pick-up, and ultimately make more
It's the granular information that RFID delivers which has
prepared retailers like American Apparel to make the move to
omni-channel selling. They have reduced warehousing needs by
supplementing distribution centre inventory with that of
RFID-enabled stores. When the distribution centre is out of stock,
online orders are fulfilled directly from stores. Gerry Weber goes
a step further, allowing customers the choice of direct shipment or
pick-up at their closest store. In-store pickup comes with the
added benefit of potential incremental in-store sales.
Confidence is key
Companies that offer Internet-based purchases and local store
pick-up traditionally build in a healthy error tolerance. A store
may show that they have five DVD players in stock, but they are so
unsure of actual inventory levels that unless they show 10 or more,
they tell online shoppers that they are out of stock. The
worst-case scenario is sending a shopper to a store to pick up an
item that isn't there. So retailers have always erred on side of
caution and missed out on sales.
With RFID, the inventory confidence required for omni-channel is
there. One industry expert believes that omni-channel retailing
will come into its prime when Distributed Order Management (DOM)
matures. The technology leverages detailed logistics data to
calculate the optimal way to source a product as soon as an order
is made. "Right now we're using heuristics and best guesses," says
Dr. Bill Hardgrave, Dean of Auburn University's College of Business
in Auburn, Alabama. "DOM is not mature partly because today's
systems are not operating in real time-there is always a lag of
several hours. You can't recommend the best way to source a product
if that information is out of date," he observes.
Stores like Macy's and Gerry Weber are starting to use RFID to
optimise in real time, something that Hardgrave has seen happening
very quietly, and for good reason. "Implementing RFID is something
that retailers have no qualms over crowing about," says Hardgrave.
"Just having RFID is not a sustainable competitive advantage. What
you do with it is." Hardgrave believes that when DOM matures and
bricks & mortar retailers truly figure out omni-channel retail,
pure online players like Amazon are going to get hurt. "They don't
have the physical presence," he says. "When Best Buy and other
retailers really figure out omni-channel and make efficient use of
their stores as part of the distribution network, I don't see how
Amazon can compete with that."
Drop the discount
Rüediger Hulla, the man in charge of international project
management for global technology solutions specialist Futura,
believes that reducing the need to discount can vastly improve
revenue from existing streams-and that's got a whole lot to do with
RFID. Hulla has seen his fair share of implementations, and has
noted a trend among major European retailers of making
store-specific recommendations on what to order, and orchestrating
According to Hulla, the next big impact on revenue in retail will
centre on detailed information regarding the real age of products.
"You can only truly optimise the movement of goods if you have
visibility into the real age of the item," he says. "It ties in
with DOM, but it's an entirely separate concept. The potential for
increased revenue is far higher." The idea is a simple one: if you
know how long each item has existed within the inventory system,
you can plan better and discount less.
Given that 47% of fashion apparel is sold at discount, it's also
a big idea. "You can use that information strategically to move
products to where they are going to sell better, or to discount by
20% early on rather than having to discount by 50% later," says
Hulla. "That's 30 points, plus the space you're able to allocate to
new, full-priced items. It's got a huge impact on profitability."
Information is power, and the granular data needed comes from RFID.
One Gerry Weber shop has antennas strategically placed on the
ceiling to keep track of the exact age and placement of every item,
and place the newest items at the front of the shop, using them as
a magnet to attract shoppers.
Better visibility, better news
The improved visibility that enables higher profitability
through less discounting also helps reduce shrinkage. Complete
supply chain visibility provides concrete proof of where goods are,
or were, at any given time. Enlisting manufacturer and logistics
partners to scan and upload tag information as part of doing
business will show you where an item went missing en route. The
same goes with in-store, where RFID-enabled electronic article
surveillance (EAS) helped American Apparel to reduce internal
shrinkage by up to 75% at some locations and 55% overall. "Employee
theft is the biggest cause of shrinkage among most retailers," says
Lalla of Nordic ID. RFID EAS has been terrifically successful in
minimizing that." Bolt-on solutions like ZeroShrink add another
level of security, especially useful in the case of high value
items such as jewellery and watches.
However, RFID-enabled EAS is rare. "Today we're at loss
detection, not loss prevention," says Hardgrave. With conventional
electronic article surveillance (EAS) systems, it's difficult to
detect what was stolen. "With RFID we can see that it's 5 pairs of
shoes out front door and 10 pairs of jeans out the back door,"
observes Hardgrave. "With enough RFID gateways throughout the
store, you can track product movement, identify patterns and
ultimately take steps to stop theft before it occurs."
Just as it helps reduce shrinkage, RFID can bolster revenue and
safeguard the brand through reduced piracy. Wonder why some
retailers aren't ordering as much of your product as they used to?
It could be that they are getting a pirated version for far
cheaper. Other times, retailers are duped. Either way, the consumer
and brand owner are cheated. With RFID tags sewn in at point of
manufacture, retailer can readily identify counterfeits. Brand
owners can also visit retailers, perform audits at retail and say
for certain if retailers are selling fakes.
RFID: the fashion designer's new best
It's not a new revenue stream, but it is a new way to drive
sales. When you know exactly what size and colour of what item was
sold at what time and date at each and every store, that's power.
American Apparel uses such data for trend recognition - to gain a
more precise understanding of what sells where best. This
facilitates replenishment, shapes future design that's going to
sell, and helps indicate where to allocate how much of each
Retailers are appealing to shoppers' sense of fashion in other
ways as well. Roberto Verino, a Spanish fine fashion retailer, runs
Smart Fitting rooms in their flagship store to create an experience
while Burberry's flagship store in London's Regent Street has smart
mirrors that will turn into screens and show a short film detailing
the creation of each piece. Not every RFID experiment will bear
fruit, of course, but it's certain that this game-changing
technology is delivering ever-increasing value.
Left: Rüdiger Hulla is Head of
Project Management, International with Futura, a global technology
solutions implementation company headquartered in England.
Middle: Professor Bill Hardgrave is
Dean of Business at Auburn University in Alabama. He is a
prominent, published expert on RFID who often speaks on the
Right: Jorma Lalla is CEO
of Nordic ID, a leading manufacturer and provider of efficient
store operations management with RFID for apparel
and specialty retailers.