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Item Tagging Offers Quick Payback

A newly published study shows that apparel and footwear retailers can expect a quick return on investment from deploying RFID.
By Mary Catherine O'Connor
Dec 13, 2005For retailers of apparel and footwear, the benefits of using radio frequency identification technology at the item level can be quick and significant, according to a white paper issued by consulting firm Kurt Salmon Associates. The paper, titled "Moving Forward with Item-Level Radio Frequency Identification in Apparel/Footwear," is based on a four-month study Kurt Salmon conducted this summer on behalf of the Voluntary Interindustry Commerce Standards Association (VICS) and the American Apparel & Footwear Association (AAFA).

For the study, the consultancy interviewed key managers from seven companies testing the technology and deriving revenue from both retail and wholesale operations. The purpose of the study was to help VICS and AAFA member companies better understand the timing and manner in which item-level RFID technology could be deployed (see Apparel, Footwear Groups Study RFID).

"The place to start is at store level, because the benefits are extraordinary," says Stephen Bogart, a Kurt Salmon principal who, along with a colleague, consumer/retail consultant Marshall Kay, authored the report. "Across the board, among all the companies we interviewed, there were improvements in terms of out-of-stock items and reduced labor," he says.

The study was based on in-depth interviews conducted with managers across a variety of disciplines, including store operations, inventory management, loss prevention, merchandising, distribution/logistics, accounting and information technology. It concluded that apparel and footwear companies could deploy small-scale RFID trials with minimal disruption to current business processes. Retailers should start with small-scale pilots, says Bogart, or even just proof-of-concept tests of the technology including tagging just one or two high-value SKUs exhibiting high shrink (lost or stolen goods). At first, he says, retailers should add the RFID inlays to the products (the most common means is by applying an RFID sticker to a hangtag) as they are being received into the back of the store. As the volumes of goods a retailer tags and the number of store locations deploying the technology both grow, that should move the tagging process back to the distribution center, where it will be done as a value-added step, and eventually on to the point of manufacture.

"The reader infrastructure doesn't need to be extensive within the stores," says Bogart. He notes that most apparel stores in malls, other than large department stores, have just one entry point for inbound goods, meaning one fixed-position portal interrogator (reader) would be needed for receiving tagged goods—once tagging is moved back to the DC. Otherwise, most applications of the RFID tags could be conducted with handheld readers. These applications include scanning the shelves and displays on the sales floor to create lists of replenishment items. "If you have store associates doing this process with tagged goods and a handheld RFID reader," he says, "the process is 150 times faster, and also more accurate and consistent, than doing this task manually.

According to Bogart, a business case Kurt Salmon recently completed for an unnamed retailer embarking on an RFID item-level field test showed that the retailer could realize a return on investment within a few months. The total operational savings, including reductions in labor, inventory and shrink costs, would total $233,000 annually per store. The total costs of deployment for this retailer (the costs of the infrastructure and training) would be $22,000, plus $25,000 for the RFID tags, but that estimate is based on a cost of 30 cents per tag, while inlays are now being sold for as little as 10 to 15 cents apiece.

Bogart says retailers can also use fixed RFID interrogators to monitor items customers bring into dressing rooms but do not subsequently purchase. This is often just an indicator of items improperly sized.

The white paper encourages retailers embarking on item-level RFID tagging trials to follow EPCglobal's guidelines on EPC for consumer products. These guidelines suggest, for instance, using logos or other identifiers to flag all goods carrying or containing an RFID tag.

"Based on the research we did, we were positively surprised that there were few problems related to consumer privacy issues," says Bogart. "Inside the stores where RFID was being implemented, in every case, the retailers took extraordinary measures by using many notices—both on garments and in stores—explaining that RFID was being used, and that its purpose was for inventory control only. And all of the retailers we interviewed were removing the tags at the point of sale."

The white paper is available online for free at Kurt Salmon's Web site.
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