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Do Tag Costs Matter?

RFID Journal's Apparel Retail ROI Calculator can help companies discover how RFID can deliver huge benefits.
By Mark Roberti
Oct 28, 2016

Many retailers that are just learning about RFID ask about the cost of the tag. Some even say they can't adopt the technology until tag prices come down. It's an odd position because tag cost is not a key driver of a retailer's return on investment.

RFID Journal has created an RFID Apparel Retail ROI Calculator to help retailers determine what their potential ROI might be. Of course, the calculator can't cover every benefit of an RFID deployment. For example, it doesn't allot any payback for RFID's help in supporting an omnichannel strategy by ensuring items are in stock when systems say they are in stock, and reducing the amount of time store associates spend locating items purchased online for pickup in store.

Illustration: Hong Li, iStockphoto
The calculator focuses on one key benefit RFID can deliver—higher margins—by ensuring that more items are sold at or near full price. When items sit in the back of the store instead of being displayed on the shelves, customers can't find them and they often have to be marked down later.

The base model in our calculator assumes a 4 percent increase in margin per store due to the improved inventory accuracy RFID delivers. It also assumes a 1 percent increase in incremental sales from items that are replenished in a more timely way. Is this reasonable? We think it is conservative.

Take the example below, in which a retailer buys 100 sweaters for $40 each and sells them for $100. When they don't sell, they are marked down to $70, then $60, then $50 and finally $40. Based on our example, this yields $3,500 in profit on this one item for the retailer.

Now, look at what happens if just three more items are sold at full price, four more at $70 and two more at $60. The result is an additional $300 in revenue (4 percent), all of which is reflected in the profits.

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