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RFID has slowly but surely been gaining importance in the retail industry. Motorola explains how this simple technology is providing all-round benefits to retailers
It has long been expected that the use of radio frequency identification (RFID) technology would have enormously beneficial effects for retailers. The good news is that, in apparel and footwear retailing, RFID is indeed having a positive impactóbut itís the retail store, rather than the supply chain, that is seeing the biggest benefits.
Most experts predicted that the supply chain was going to be the place where RFIDís abilities were first supposed to produce big returns. Case and pallet-level tagging would improve product movement visibility, streamline distribution and make forecasting more accurate and manufacturing more responsive. It's true that RFID technology has made inroads in these abovestore areas, and will continue to do so, but in apparel and footwear retailing, most RFID action is at the store level.  Item-level RFID deployments are boosting stores' inventory accuracy levels to near-100 per cent, and this simple yet dramatic improvement is setting the stage for a host of other benefits like: Out-of-stocks reduced by 60 per cent to 80 per cent Sales increases of 4 per cent to 21 per cent Reduction in cycle count time by 75 per cent to 92 per cent Reduction in inventory carrying costs by 30 per cent to 59 per cent. These figures, from real-world item-level implementations by Motorola and its technology partners, show how positively dramatic the results can be. RFID solutions sustain the improved processes and remove the human error associated with traditional manual inventory collection tasks. The practical application of RFID has provided a quick ROI through the increased sales and enhanced customer service associated with accurate on-hand inventory. RFID's performance is especially impressive in the light of retail's historical problems with inventory accuracy. 'Retail stores only have correct inventory counts on 50 per cent or less of their items,' says Bill Hardgrave, Director of the RFID Research Center at the Sam Walton College of Business of the University of Arkansas. 'That means retailers are basing their inventory decisions on numbers that are wrong more often than theyíre right. But with the retailers weíve been working with on RFID deployments, weíve been able to get near-100 per cent inventory accuracy,' he adds. Addressing Customer Dissatisfaction
More accurate inventories are a basic building block for improving store operations and enhancing the customer experience. 'If you look at the three major causes of customer dissatisfaction in a retail environment, they are: items being out of stock, customers not being able to locate a product, and the checkout process,' says Mr Hardgrave. 'For addressing out-of-stock situations and locating particular products, item-level RFID is certainly the way to go. It has helped us solve problems that have heretofore been unsolvable, or been solvable only in ways that were not financially viable.'
Mr Hardgrave explains that item-level RFID solutions help increase in-stock levels by improving inventory accuracy and aiding loss-prevention efforts. And because RFID-tagged items can be much more easily located within the storeís four walls than non-tagged items, store associates can more effectively address the second key cause of customer dissatisfactionóthe inability to locate products. Recent research suggests these challenges are costing retailers, both in terms of dissatisfied customers and in lost sales. A survey of shoppers conducted indicated that nearly one-quarteró23 per cent were unable to purchase everything they needed or wanted in the stores where they shopped during the holiday season. The top two reasons cited for consumers not being able to find what they wanted were: 'Could not find the item' (42 per cent) and 'The item I wanted was out of stock' (34 per cent). The survey, commissioned by Motorola and conducted by e-Rewards, a provider of online market research services, was administered to a representative sample of more than 2,400 holiday shoppers in the US, Canada and the United Kingdom. The inventory accuracy that comes from item-level RFID deployments helps retailers address these and other issues that are among their top store systems priorities. According to the RIS News/IHL Group 2009 Store Systems Study, 'Providing associates with better tools' was cited as the top store system priority by responding retailers, at 58 per cent. Other key priorities included ëLoss preventioní (40 per cent), 'Inventory visibility/stock inquiry' (39 per cent), 'Speed through checkout' (36 per cent), and 'Reducing out-of-stocks' (36 per cent)óall operational aspects to which RFID can make dramatic improvements.  In addition, RFID's ability to provide a truer picture of store inventory is helping retailers serve the increasing number of customers who 'pre-tail' before they visit a retail store. 'At AMR, weíve done some recent research suggesting that the ëmoment of truth' for consumers is moving away from the shelf itself. It's moving upstream to the home, where consumers do online research,' says Mike Griswold, Vice President, Retail at AMR Research. He adds, I have seen research indicating that for certain product categoriesóparticularly big-ticket or technologically complex itemsóthe product was extensively researched 85 per cent of the time by shoppers before they came into the store.While the percentage of apparel and footwear shoppers who pre-tail is likely to be lower than 85 per cent, it still indicates that more consumers are shopping with a particular item in mind'a model that RFID is ideally suited for. Any technology that more efficiently connects these shoppers with the items they want thus becomes increasingly valuable in todayís retail environment. Even when customers'expectations are not raised by their own pre-tailing activities, they are becoming less forgiving of retailers who don't have the items they want on the shelf. 'Our research shows that after consumers experience two or three out-of-stock occurrences at a particular retailer, they decide to shop somewhere else,' says Mr Griswold. In the past, retailers could risk as many as five or six out-of-stock occurrences before consumers lost patience and switched to another store. Item-level RFID addresses this problem because it boosts the retailerís chance of having the product when the customer shows up, so it's a great execution enabler, he adds. 'We have yet to see a retail senior executive who isn't extremely interested in real-time inventory visibility, ' says Gordon Adams, Senior Vice President for Sales and Marketing at Vue Technology, a leading RFID software vendor. 'It's not surprising considering the significant positive impact it has on sales, labour productivity, shrink and customer satisfaction. No other technology has this kind of impact across a retail enterprise.' Increased Confidence In Inventory Data Dramatic improvements in inventory accuracy are already occurring with item-level RFID deployments. Now the big challenge is convincing people throughout the retail organisation that the inventory data they are seeing is indeed accurate. When these confidence levels rise, retailers can improve both customer service and operational efficiency.
Raising confidence in the data is no easy task. 'Retailers have become so used to their perpetual inventory counts being wrong that they will err on the side of being too conservative,' explains Mr Hardgrave. 'If someone calls or checks online to see if an item is in stock, the retailer may actually have three of the items in stock; however, because they have historically built in such huge margins for error, they say they don't have any in stock. They want to avoid the worst thing that can happen, which is that they say they have something, the customer comes to the store, and it turns out they don't.' 'However, with RFID's improvements to inventory accuracy, retailers can be more confident,' he adds. 'When the store says, 'We have it, 'the retailer knows with a level of certainty that they actually do have it' and that they can find it quickly and easily. For the consumer, that really helps improve the customer experience and builds brand loyalty.' Greater inventory accuracy and higher confidence levels give retailers a number of operational advantages. They can create more precise store promotions, improve their reaction capabilities to overstocked items, and implement better replenishment models. With a clearer, more accurate picture of what (and how many) items are where, they can also reduce safety stocks as well as overall inventory levels. This lowers inventory carrying costs upfront, and improves margins by reducing the need to sell safety stock at marked-down prices later.  Dramatic Cuts in Cycle Count Times The biggest improvements in inventory accuracy are being seen with RFID implementations that use mobile and handheld readers. The RFID Research Center's Hardgrave notes that greater use of RFID-enabled mobile devices has been part of a recent increase in itemlevel deployments by department stores, apparel and footwear retailers. The increased activity, visible since early 2008, has been helped by several technological and marketplace improvements. 'RFID tag prices came down a couple of years ago and that helped, but the tags themselves are just better they're providing better read rates and better performance across the board,' Mr Hardgrave reports. 'And the advent of mobile devices has provided much greater flexibility, especially in apparel and footwear, where the idea of cycle counting is so important. The handheld technology in particular, which allows one to take inventory at will, has really opened up things we hadnít been able to do with static RFID readers.î For retailer American Apparel, mobile reader technology has been a big part of its RFID success story, which began with an initial store-level deployment in November 2007. American Apparelís boutique-style stores display a specific planogram with, typically, only one of each style, colour and size for maximum impact, so it's critical for them to be appropriately stocked. "We knew sales would increase if we could represent every style and 'flavour' of item on the shelves, and RFID has helped us do that," notes Zander Livingston, Director of RFID at the Los Angeles-based retailer. "With the use of RFID and handheld scanners, we've reduced the time needed for inventory cycle counts from 70 to 80 hours per week down to 12 to 15 hours, and we're still getting greater than 99.9 per cent inventory accuracy."
Mr Livingston describes the multiple store-level benefits that flow from item-level RFID. "We did a big cost-benefit analysis and found that, on average, we were able to cut our stock room labor costs by 25 per cent to 35 per cent," he says. "These employees' time is now being utilised to organise, receive and ship items out of the store, which is what a stock room employee should be doingónot counting items by hand. So RFID has not only sped up the time spent on cycle counts, it's allowed us to use the time better so that the stores are very organised. 'We've found that the performance of RFID-enabled stores gets better and better the busier they are, compared with our non-RFID stores, because it keeps everyone organised and focused on their responsibilities,' he adds. 'It's a real win-win with this basic RFID system.' RFID Makes ‘On Demand’ Cycle Counts Practical
Mr Hardgrave's data shows that American Apparel's experience is not atypical. Employees using barcode scanners to take inventory can scan 200 to 250 items per hour. With an RFID handheld reader and item-level tags, that figure is nearly 5,000 items per hour. 'That's a 96 per cent reduction in the labour it takes to do an inventory, and the accuracy with RFID is higher,' says Mr Hardgrave. The use of mobile readers provides retailers with the flexibility to conduct cycle counts when and where they are needed most. 'Without RFID, complete inventory checks are done perhaps twice a year, because they are extremely laborious, very disruptive, and actually not that accurate,' says Mr Hardgrave. 'With RFID, a retailer could do a cycle count once a week or they could tailor their cycle counts to the needs of individual departments' for example those with a higher turnover of items could be done more often.' 'From our deployments, we've seen that by leveraging RFID technology, retailers can have a significant impact-not just on in-stock levels but on all the processes that support those in-stock levels,' says Tom Racette, Director, RFID Business Development for Motorola. 'We believe RFID solutions for the departmental store environment can better sustain instore processes through faster replenishment and more efficient, more consistent restocking. This creates a shopping environment where shelves are full of the sizes and styles customers are looking for, leading to higher sales and less need to use markdowns as a means to move product.'
Additional Benefits on the Horizon For the retailers who do invest in store-level RFID solutions, improved inventory accuracy is a strong beginning. There are also a range of additional benefits, both within the store environment and throughout the retail organisation.
 'The RFID solution that is deployed initially becomes the framework from which additional solutions can be deployed,' says Jim Caudill, Senior Vice President of Marketing and Strategy at Xterprise, a leading RFID software company focused on retail. 'Once the item-level deployment is successfully installed, the retailer can speed the checkout process with RFID-assisted point-ofsale (POS); help reduce shrink and loss; and speed up the restocking process.' Mr Livingston from American Apparel agrees. The retailer is piloting fitting room RFID readers as a way to increase product visibility within the store. 'Once you have an RFID system and a structure up and running, it's very easy to add functionalities such as additional read points,' he says. As item-level tags are applied to a larger percentage of a store's inventory, and as more stores within a chain deploy the technology, product visibility improves on a larger scale. 'With RFID, you get quicker demand signals about what is actually selling,' says Mr Hardgrave. 'Retailers can use this not only to drive sales in one store, but also to push information up the supply chain in real time so they know where to allocate product.' He gives the example of different-coloured products selling at different rates in different locations. 'Maybe a yellow sweater is selling well in one part of the country and a blue one is selling well in another,' he says. 'It's preferable to use demand signals to pull the appropriate product through the supply chain, versus the products simply being made and sent out, with the retailer hoping itís being sold wherever it's sent and then taking markdowns when it doesn't sell. RFID and its ability to deliver real-time demand signals will make supply chains much more flexible, and much quicker to respond to things that we can't respond to now.'
He adds that improved item-level visibility also gives a clearer indication of where precisely in the supply chain shrink or inefficiencies may be occurring. Improving loss prevention and streamlining distribution processes is particularly important in the apparel and footwear industries, where timely deliveries can have a big impact on margins. 'In apparel, a couple of weeks could be the difference between selling an item at full price versus half price,' says Mr Hardgrave. 'If retailers can find the bottlenecks in their supply chains and move items through more quickly, everybody wins.'
Mr Griswold agrees about the importance of any technology that reduces the need for markdowns. 'Particularly in this economy, the ability to postpone or eliminate markdowns is a huge opportunity,' he says. 'Right now retailers are hemorrhaging on markdowns, and RFID provides a vehicle to minimise that.' In the longer term, the item-level product movement data could be a treasure trove for product designers, merchandisers and forward planners. 'People are finding that thereís a significant value in visibility, including seeing what products customers are buying with other products,î says Mr Griswold. 'This type of cross-selling data can flow upstream so that retailers can make better assortment decisions, and also improve in-store merchandising.' For a technology that utilises a tiny tag, RFID is already having a huge impact. At the store level, it's boosting inventory accuracy to previously undreamed-of heights and making frequent, on-demand cycle counts practical and cost-effective. These basic benefits are boosting in-stock levels, and also helping make store associates more efficient by providing them with accurate, up-to-the-minute data about products' presence and current location within the store. Item-level RFID solutions are thus allowing retailers to address two key causes of customer dissatisfaction-out-of-stock situations and the inability to find products-while at the same time boosting sales and controlling their store labour costs. As item-level RFID solutions expand, this store-level visibility can be spread across the supply chain and throughout the retail organisation. With clearer, more timely demand signals, retailers will be able to streamline product replenishment and distribution while addressing shrink and improving the entire doorto-floor process. With more of the products people want moving quickly through distribution channels, sales will increase and the need for markdowns will decrease. Retailers can also use the detailed data that RFID solutions produce to improve forecasting, assortments, and merchandising, so that RFID's benefits continue to grow for many years to come. Courtesy-Motorola. |
