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By Beth Bacheldor

Many RFID-Adopting Retailers Report More Than 5 Percent Improvement in Gross Margins

RFID continues to gain traction among retailers, according to a new study from global management and strategy consulting firm Kurt Salmon. In a survey of 50 U.S. soft lines retailers, almost one-third, or 32 percent, reported that their companies had adopted radio frequency identification. The study, conducted in July and August 2014, surveyed retailers that met a minimum revenue threshold of $500 million in revenue in the basics, fashion or accessories merchandise categories.

Survey respondents indicated that the most significant benefit was through back-to-front accuracy, with 40 percent reporting more than a 5 percent improvement in gross margins. Respondents also reported use cases including omnichannel fulfillment and shrinkage reduction, with benefits ranging from less than 1 percent to more than 5 percent.

In addition, the study found that 66 percent of respondents reported not using RFID at this time. However, 15 percent of non-users plan to pilot RFID within the next 12 months, while 18 percent of non-users are considering RFID pilots sometime in the future. The barriers to adopting RFID, according to respondents who have not yet implemented the technology, include management being focused on other priorities (47 percent), prohibitive costs (18 percent) and legacy inventory-management system (18 percent). Retailers with annual revenues of more than $1 billion were 4.3 times more likely to have implemented RFID (41 percent) than those with revenues between $500 million and $1 billion (17 percent).

According to Kurt Salmon, many early adopters of RFID have been companies in categories for which retailers could achieve the targeted return on investment (ROI) through gains in inventory accuracy alone. For the most part, these are categories characterized by complex assortments (style, color or size) and low substitutability (such as denim), for which RFID can enhance back-room to front-of-store inventory accuracy and replenishment.

The study found that "backroom to front-of-store inventory accuracy and replenishment" was the most commonly cited use case for RFID tagging in the basics, apparel and footwear categories. The top cited use case for basics undergarments and intimates was to reduce out-of-stocks.

As with basics, "backroom to front-of-store inventory accuracy and replenishment" was the top cited use case for RFID in the fashion apparel and footwear categories. According to the consulting firm, fashion retailers place a high priority on inventory accuracy since they often hold fewer products on the floor and may miss sales opportunities if replacements remain in the back room. Reducing out-of-stocks was the top use case cited for the fashion undergarments and intimates categories.

The respondents who indicated a desire to pilot RFID within the next 12 months reported various reasons for wanting to do so: 68 percent cited a need to reduce time and labor costs via automated inventory reports, 64 percent wished to reduce shrinkage, 64 percent hoped to support omnichannel fulfillment (shipment from store and pick-up from store), 61 percent sought to improve back-to-front replenishment and 54 percent wished to decrease store out-of-stocks.

The study also found that several retail segments, including department stores and specialty brands, are experimenting with interactive retail strategies, including smart fitting rooms and magic mirrors that read products and deliver targeted and supportive media content to mimic an online shopping experience—with personalized recommendations and coupons—in stores.

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