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RFID: the Revenue Stream Game-Changer

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 discounting.

OOS-to -blame -for -discounted -items

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 real game-changer.

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 before.

"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 money.

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 inter-store transfers.


Sale


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 friend

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 product.

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.

Rudiger -Bill -Jorma

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 subject. 

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.

2 comments on “RFID: the Revenue Stream Game-Changer”

  1. Posted 31 October 2013 at 10:18:26

    To all retailers in Europe!

    A nice seminar on the same topic will be held on November 20th in Stockholm, Sweden. Come and hear some more:

    http://www.nordicid.com/eng/events/fashion_retail_event/

    :) Mimmi

  2. Posted 01 November 2013 at 04:26:43

    Great article. I'd love to attend the Stockholm meeting.

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