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Transport EDITOR'S NOTE
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Are RFID's Benefits to Apparel Retailers Real or Hype?
Notice that the additional $400 earned from selling more items at a higher price all flows to the bottom line. What's also interesting about this illustration is that it shows that a retailer needs to sell just five more items at full price, four more at a 30 percent discount or one more at a 40 percent discount to achieve a 5 percent sales increase. Selling 10 items (just 10 percent of the total inventory) at a higher price leads to a 5 percent increase in revenue, and an 11 percent improvement in profits on the 100 sweaters.
Some CEOs might insist they are so efficient that they can't sell many more items at a higher price. That's understandable, because store systems are telling them they are efficient. Those systems will indicate an item is in stock, but it won't reveal that it's in the wrong location on the sales floor, or in the back of the store, or that it's been stolen. A study by the University of Pennsylvania's Wharton School found that shoppers left apparel stores more than 30 percent of the time without finding at least one item they came in to buy. Thirty percent!
Improved inventory visibility through the use of RFID could enable a store to reorder hot items from a supplier more efficiently, thereby leading to incremental sales. The normal profit margin needs to be applied to the additional sales. Selling five more items at full price, with the same 60 percent margin, would lead to the same $300 increase in profits. In the current environment, most of the revenue increase is likely to come from selling more items at or closer to full price.
Even if CEOs accept that RFID can boost sales by increasing inventory visibility and improving store execution, they would probably still harbor concerns regarding the cost of such a system. Most systems integrators told me that $50,000 per store is a good rough estimate of the costs. We used $63,000 in the Fashion Retail ROI Calculator we've developed (see A New ROI Tool for Apparel and Footwear Retailers), allowing companies to adjust the costs based on their store layout; if you have two receiving doors, for instance, you can change the inputs to account for two portals. Yes, $63,000 per store can add up to a big number if you have a lot of stores. On the other hand, if the first 10 stores provide an ROI within six months, then the increase in profits can fund the rollout to additional locations.
When I plugged various numbers into the ROI Calculator, I found that for our fictional retailer, even a 3 percent increase in revenue from selling existing inventory at a higher price would lead to a return on investment on its RFID deployment in less than 12 months.
What could this mean for your business? Consider our fictional retailer. When fully operational at all stores, RFID could contribute more than $25 million to the company's bottom line after three years. I invite CEOs to try our ROI Calculator and see for themselves—and if the numbers seem too good to be true, invest $50,000 in a pilot that will give you hard numbers to put into the Calculator, so that you can determine what the chain-wide benefits will be. I think you'll find our estimates are actually conservative.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.
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Some CEOs might insist they are so efficient that they can't sell many more items at a higher price. That's understandable, because store systems are telling them they are efficient. Those systems will indicate an item is in stock, but it won't reveal that it's in the wrong location on the sales floor, or in the back of the store, or that it's been stolen. A study by the University of Pennsylvania's Wharton School found that shoppers left apparel stores more than 30 percent of the time without finding at least one item they came in to buy. Thirty percent!
Improved inventory visibility through the use of RFID could enable a store to reorder hot items from a supplier more efficiently, thereby leading to incremental sales. The normal profit margin needs to be applied to the additional sales. Selling five more items at full price, with the same 60 percent margin, would lead to the same $300 increase in profits. In the current environment, most of the revenue increase is likely to come from selling more items at or closer to full price.
Even if CEOs accept that RFID can boost sales by increasing inventory visibility and improving store execution, they would probably still harbor concerns regarding the cost of such a system. Most systems integrators told me that $50,000 per store is a good rough estimate of the costs. We used $63,000 in the Fashion Retail ROI Calculator we've developed (see A New ROI Tool for Apparel and Footwear Retailers), allowing companies to adjust the costs based on their store layout; if you have two receiving doors, for instance, you can change the inputs to account for two portals. Yes, $63,000 per store can add up to a big number if you have a lot of stores. On the other hand, if the first 10 stores provide an ROI within six months, then the increase in profits can fund the rollout to additional locations.
What could this mean for your business? Consider our fictional retailer. When fully operational at all stores, RFID could contribute more than $25 million to the company's bottom line after three years. I invite CEOs to try our ROI Calculator and see for themselves—and if the numbers seem too good to be true, invest $50,000 in a pilot that will give you hard numbers to put into the Calculator, so that you can determine what the chain-wide benefits will be. I think you'll find our estimates are actually conservative.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.
