Oct 05, 2011—American Apparel, a vertically integrated clothing manufacturer and retailer based in Los Angeles, has already deployed radio frequency identification at more than 50 of its 285 stores, and expects the rollout to total 100 stores by year's end. The company reports that the system has not only delivered the improved inventory accuracy levels it had sought, but has also provided some unexpected benefits, including a significant decline in employee theft. These additional benefits are contributing to advantages that offset the cost of borrowing money in order to pay for the solution's installation at each location, thereby creating immediate benefits for the company.

"Like many retailers, internal theft and process issues account for about 60 percent of our shrink," says Stacey Shulman, American Apparel's VP of technology. "RFID, it turns out, affects internal shrink in a profound way. We measure everything, and have accountability of every item. Every item counts, and when we change that culture, employees start treating product better. Internal theft does go down, and process errors go down."

Stacey Shulman, American Apparel's VP of technology

Examples of process errors that contribute to shrinkage, Shulman says, include receiving errors, moving goods to the sales floor without first creating the proper documentation, receiving items but not moving them to the sales floor, and transferring the wrong products between stores. "RFID allows us to capture these exceptions daily," she states, "so they can be corrected."

Within the stores that have deployed the RFID system, internal shrinkage has declined by an average of 55 percent, Shulman says—and, at some stores, by as much as 75 percent. She attributes this decrease to the reduction of process errors, as well as a change in American Apparel's culture.

"Because we are tracking every item, we are reminding our staff that each and every item has value," Shulman explains. "I liken it to the bulk-food bins at supermarkets. When you wrap food up in packaging, or measure it in a controlled way, you are telling the consumer this item has value, and most people would never consider opening the package and eating it in the store without paying for the it. But when you stick the items in bulk-food bins, those same people may think nothing of sampling the food. Items that are not regularly measured have a lower perceived value."

In April 2011, American Apparel reported that it had expected to have 100 of its 285 stores in the United States and around the world equipped with fully functioning RFID systems by the end of this year (see American Apparel Adding 50 More Stores in Aggressive RFID Rollout). Shulman says that given that the savings from using the system virtually covers the deployment cost—American Apparel is leasing the equipment, rather than paying for it upfront with cash—the business would move more quickly, if it could.

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RFID Delivers Unexpected Benefits at American Apparel

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