Focused, carefully managed RFID initiatives designed to accomplish specific business goals are already producing significant, measurable benefits for the apparel and footwear industry, Item-level tags and in-store deployments are addressing some of the industry's most basic challenges, including out-of-stock levels, inventory accuracy, and helping customers quickly and easily find the size, style and color that they're looking for.
RFID's speed, accuracy and operational applications are being demonstrated in a growing number of realworld retail deployments. For example, item-level tagging is making daily cycle counts traditionally so time consuming and labor-intensive they take place only two to four times a year-not just possible but practical.
These and other RFID benefits are creating sales lifts ranging from 5 to 20 percent across a wide range of deployments.
Those stuck in a "Think Big" mindset- believing that RFID deployments must be large-scale, enterprise wide affairs in order to be effective - are mistaken, says Marshall Kay, Principal at consulting firm RFID Sherpas LLC. "Unfortunately, the retailers who make this error compound their problems by then failing to attach sufficient priority to educating themselves and staying abreast of successful retail deployments," says Kay, "What they fail to appreciate is that RFID can be deployed in a very targeted manner, and almost immediately begin delivering meaningful, tangible benefits."
A more focused, incremental approach also allows retailers to concentrate on the benefits that are most important to their business model. For example, a company might choose to focus its RFID efforts first on improving inventory management processes, such as cycle counts, safety stocking, or replenishment, or on enhancing customer service. After achieving its primary goals, the retailer can then reap additional benefits in areas such as loss prevention, authenticity guarantees/counterfeit prevention, and quality assurance. "Once you put a tag on an individual product, you'll want to use it for as many uses as possible," says Kay.
"Item-level RFID deployments are delivering higher sales, with increases ranging from 5 percent to 20 percent depending on the caliber of retail execution and the range of RFID applications deployed," says Marshall Kay, Principal, RFID Sherpas.
RFID solutions help Best in Class retailers reduce:
- Inventory replenishment time by 30 percent
- Theft incidents by 42 percent
- Price markdowns by 25 percent
- Customer wait times at the POS by 25 percent
In addition, store-Ievel RFID applications offer several consumer benefits that can have a strong positive impact on customer service. These include:
- Faster product location
- Improved access to detailed product information
- Improved access to product availability
- Efficient after-sales processes
- Guarantees of product authenticity
As beneficial as all these improvements are, for many retailers RFID's key benefit is its ability to increase topline sales. RFID Sherpas' Kay reports that item-level RFID deployments are indeed delivering higher sales, with increases ranging from 5 percent to 20 percent depending on the caliber of retail execution and the range of RFID applications deployed.
Many factors contribute to these sales increases, but most experts agree that RFID's ability to put the right product in the right place at the right time is crucial, especially given that customers have nearly a 10 percent chance of finding their product out of stock on the retail shelf, according to a March 2008 AMR Research, Inc. article by John Fontanella.
When items are misplaced (on the wrong shelf, in a fitting room, or in a back room) or not on the sales floor, retailers experience both "hard" and "soft" losses. The "hardest" loss is a lost sale, and it's more common in apparel and footwear than in, for example, grocery, where an out-of-stock situation mal simply result in a consumer choosing a different brand of their desired product.
"Soft" losses can take a variety of forms. The time salespeople spend looking for a product could certainly be spent more productively - especially if they ultimately can't find what the customer wants. The customer's negative perception of the retailer, which began when they were unable to find the product or their own, has now been compounded by having his or her time wasted waiting for the salesperson. And the salesperson is placed in the position of placating an angry or disappointed customer rather than pleasing a satisfied one.
Compare these scenarios to the information-rich store made possible by item-level RFID. Improved inventory accuracy and more efficient restocking means the product is more likely to be on the right shelf in the first place.
If it's not, "smart" shelves as well as back-room and fitting-room readers vastly speed and simplify product location. Even if the product is not in the store at the time, improved data availability allows sales people to give customers definite information-or to offer an alternative that is in stock. In this environment, both this particular sale and any number of future sales can be saved.
Deployments on the Rise
The desire to create these information-rich shopping environments is one element fueling a sharp rise in RFID deployments."1 see 2009 shaping up as a very big year for item-level RFID in apparel and footwear," says Kay. In addition to the consistent sales increases demonstrated by previous deployments, he cites a number of other converging factors:
- Deployments are Getting Simpler:
"Customers have nearly a 10 per cent chance of finding their product out of stock on the retail shelf," says John Fontanella, AMR Research.
Vendors now offer a number of out-of-the-box tools, such as reader and shelf packages and reporting applications, for retailers' RFID solutions, so there's less need for custom applications and complex systems integration efforts. Kay notes that in 2007, a U.S. specialty retailer was able to RFID-enable one of its stores in under 75 days. The retailer was quite pleased with the results and is planning to quickly deploy these capabilities to several more of its stores.
- Lower-Priced Items are Being Tagged:
Retail price points of tagged clothing have dropped and are continuing to so, with the lowest U.S. retail price currently at $8 and reaching as low as $6 in other parts of the world. "This blows away the myth that RFID is applicable for moderately priced expensive items, and shows that RFID is usable and economically justifiable at even modest price points," says Kay.
- Department Stores are shifting Their Stance:
According to Kay, in December 2007 a major U.S. department store chain informed its suppliers that it expected their senior executives to give serious thought to working on item-level RFID. "This is the signal that dozens of apparel and footwear companies have been waiting for," he notes. "Until now, merchants and suppliers have been treating RFID like an asteroid, worrying when it will hit and what the impact will be. Now a major retail account has issued its first clear, written directive, asking these suppliers to get their act in gear on RFID. It's not a mandate - in fact, this retailer has gone to great lengths to emphasize that it hopes it won't have to issue a formal mandate - but it's a significant milestone and it will generate a series of deployments."
Department stores may be reacting to the competitive edge that specialty stores with closed-loop supply chains have in the RFID area. On a practical level, retailers who control their supply chain processes will have an easier time with the mechanics of item-level RFID solutions: matching unique item information with unique RFID chip identifiers in a database; embedding RFID chips in labels; matching the correct label to the correct item; and shipping them to retail stores. A closed-loop supply chain can facilitate a closed information loop, allowing retailers to chart each product-s journey through the store- from the back room, on to the sales floor, and through the pas to the consumer.
Tagging logistics are another practical consideration during an RFID initiative. Industry experts and RFID vendors note that hang tags can make for an easy adoption process. In addition, to get the most out of the information capabilities of an RFID system, tagging multiple style, size, and color product sets are ideal item selectivity characteristics.
One positive sign for RFID's long-term prospects is that the metrics being used to measure a deployment's success are moving away from technical issues, such as read rates, toward metrics that have an actual impact on a retailer's business. In addition to sales increases, in-stock positions and conversion rates, customer experience metrics are becoming part of the analysis. Key performance indicators such as the average duration of a customer's store visit and the amount of time customers and associates spend searching for merchandise "are only now starting to get the attention they deserve," says Kay.
At this point in RFID's development, carefully focused deployments yielding such distinct, easily measurable benefits make strong business sense. But RFID's flexibility and its "fit" for apparel and footwear retailing indicate that companies seeking the biggest ROI should be prepared to expand their limited deployments to more items, more stores, and more parts of their enterprise.