Anyone with more than a few years in the retail supply chain knows about the transformation of industry practices created by mass acceptance of EDI about a generation ago. If they have a few more years’ worth of experience, he or she understands the changes caused by the mass acceptance of bar codes half a generation before. The industry is now going through a similar evolution with item-level or end product RFID.
Several companies are currently using item-level RFID to improve inventory accuracy and for other business use cases in the apparel and footwear categories. They are sharing the benefits they have experienced under the auspices of the VICS Item Level RFID Initiative (VILRI), an inter-industry group of the country’s leading retailers, suppliers, industry associations, academics and solution providers. This group is dedicated to quantifying the benefits of item-level RFID and exploring how it can improve business processes throughout the retail value chain.
Desired Achievements
The effort to understand the potential of item-level RFID starts with a series of challenges trading partners are trying to solve, including:
➤ Reducing out-of-stocks—This is more critical than ever, not only to apparel, but in all product groups. Keeping store inventory to an absolute minimum is critical to success. The balance of meeting consumer expectations and being as efficient as possible is no longer an option.
➤ Increasing sales and increasing store and supply chain productivity—This will certainly contribute to the retailer’s and the supplier’s bottom line. Pilots have indicated that having the right mix of products consumers want to buy will maximize sales, maintain adequate shelf availability and help keep prices competitive.
➤ Lowering the cost of inventory—Avoiding out-of-stocks and markdowns is very important, but the limited selling seasons of apparel and the frequent reconfiguration of products on the sales floor makes this challenge difficult without item-level RFID.
➤ Improvement of speed to market—With many products, trends and consumer preferences emerge rapidly, especially in the fashion business. Products have to get from design to the store faster than ever, sell and be replenished as quickly as possible, while consumer interest is at its highest-and before the next selling season begins.
➤ Reducing labor—Retailers routinely slash prices to sell slow moving merchandise, which results in lower gross margins. Improving store-level inventory accuracy and the number of SKUs that can be read with an item-level RFID reader vs. bar code scanning takes labor out of doing physical inventories and searching for products. As source tagging is broadly implemented, retail and manufacturer labor productivity will improve. The supplier will be able to access order status and have fewer order discrepancies to resolve.
➤ Generating data to maximize programs—The marketplace is rapidly changing to direct marketing programs with a goal of driving store traffic. Retailers need accurate, real-time information to determine which promotions are working and which aren’t. Suppliers need this information to determine which marketing campaigns they will continue to fund.
➤ Preserving brand integrity—Counterfeiting is a significant problem, estimated to be at $1 trillion worldwide on an annual basis. It erodes brands and margins, and causes confusion in the marketplace. Consumers don’t know if they are buying legitimate brands or bogus products. Item-level RFID, with GS1US EPC enabled serialization, is a proven approach that can comprehensively address this challenge.
➤ Consumer satisfaction—Harvard Business School research has consistently found that when a product is out of stock, the interested customer is highly unlikely to return to that store, but will shop for the product in another store. Research by the University of Arkansas found that the retailers participating in item-level RFID pilots each saw about a 6% increase in sales as a result of having product in stock.
➤ Reducing shrink—The overall average for retail shrink is 1.45% of sales. The average in apparel is 1.87%, computer and electronics is 0.97%, cosmetics and perfume are 1.79%, jewelry is 1.06%, shoes is 0.85% and vehicle parts is 1.77%.
Real Accomplishments
Accenture recently produced a VILRI survey titled “RFID Nears a Tipping Point,” which suggests that adoption of RFID is reaching a “tipping point,” with 80 percent of surveyed retailers having initiated pilots using RFID to track item sales in their stores. The report, which includes input from Accenture and a survey of 58 suppliers and 56 retailers in North America, confirmed that item-level adoption of RFID is gaining traction. Among the leading highlights are:
➤ Item-level RFID may be creating a competitive advantage for early adopters by giving them better inventory accuracy, visibility and insight, enabling them to improve in-stock positions and increase sales.
➤ For some processes, the technology can now drive improvements several orders of magnitude better than current standard methods. For example, completing a store inventory, once a project of days or weeks, can now be tallied quickly and almost error free.
➤ Costs of RFID tags are falling, and will continue to fall as the rate of adoption increases with the number of tags purchased.
➤ Most major apparel and footwear retailers will adopt RFID technology in some part of their business within the next three to five years if recent momentum continues.
Real-World Examples
A survey of brand marketers by the University of Arkansas showed similar potential for the value of EPC tagging in retail supplier operations. In fact, several of the leading retailers and brand marketers in the world, having proven the business use case empirically, are now moving to full chain-wide item level RFID rollouts.
Bloomingdale’s conducted a pilot at its store in SoHo, in lower Manhattan, during the first part of 2011. The pilot program involved tracking 10,000 items with RFID, and the results showed that RFID tracking significantly improves inventory accuracy and reduces cycle-counting times. More importantly, the shopper had a better experience at the store.
Managers felt that tracking 10,000 items out of millions sold wasn’t enough to justify usage, so Bloomingdale’s expanded the pilot to track 100,000 units at its flagship store, and at three other locations. This test produced even better results, leading Macy’s Inc., the corporate parent of Bloomingdale’s, to announce last fall that by late 2012, all 810 Macy’s department stores and 41 Bloomingdale’s stores will be equipped with RFID technology to read item-level tags on garments and personal items sold.
Fashion retailer Lord & Taylor used to check inventory of shoes on display by lifting each model on the floor and scanning the barcode once a week and then sending the data to a central location. The data would then be distributed to all the stores and missing shoes replaced. Adding RFID technology to this existing process was identified as a potential improvement and the retailer started with a small scale pilot in a single store and a single category (women’s shoes) that proved successful and was soon expanded to additional stores and to men’s shoes.
Now every new shoe style that enters a Lord & Taylor store has a pair taken out of the SKU to be sampled by associating a blank RFID tag with a UPC barcode that contains info from the shoe information database. Results have been impressive. The initial pilot stores registered a 2% sales lift vs. the prior trend, a 75% labor savings and immediate visibility to missing samples. Again, most important, the shopper had a better experience at the store.
The retailer is now expanding the program to all Lord & Taylor stores in all footwear zones, is launching a pilot in the ladies footwear departments at sister company The Bay and is exploring additional business opportunities in jewelry, men’s furnishings and luggage.
Brand marketers like Jones Group and Jockey have been active with these and other tests, working to develop ways to leverage RFID technology internally and improve processes versus simply complying with retail customer requirements. Among the use cases suppliers are successfully implementing are product visibility and operational efficiencies, both of which are based on trading partner collaboration.
VILRI is designed to be a collaborative initiative that includes all segments of the retail industry. Trade associations and standards bodies are sponsoring the effort and providing valuable leadership. The academic community is actively involved, with several universities providing educational support and research. The VILRI Solution Provider Sponsorship Program includes more than 25 of the industry’s largest technology providers, which are supporting the initiative financially as well as with advice and guidance.
As the number of item-level RFID implementations increases, more companies will be more willing to share, as there will be less concern about competitive advantage or the loss of intellectual property. One of the key reasons for this is the importance industry standards, which eliminate the need for companies to meet different trading partner requirements. The extended retail industry has a lot of experience using agreed upon processes, including the bar code and EDI transaction sets, and the new series of standards and guidelines from VICS and GS1 US are being accepted equally widely.
Item-level RFID has proven to be much more than a solution looking for an industry challenge. It is, in the words of the VILRI leadership, the way retailers and their trading partners are going to do business in the future.
Joe Andraski and Ron Margulis are with the VICS Item Level RFID Initiative. Andraski is also president and CEO of VICS (www.vics.org), the Voluntary Interindustry Commerce Solutions Association, and a member of MH&L’s Editorial Advisory Board.
