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A New ROI Tool for Apparel and Footwear Retailers

Our calculator will help companies determine which benefits RFID can deliver, and enable them to run pilots resulting in information that will determine whether it makes sense to deploy the technology.
By Mark Roberti
We understand, of course, that no calculator can cover all of the differences in store operations, and we've left out some of the benefits RFID can deliver, such as reducing employee theft. But the aim here is to enable retailers to conduct a pilot that either confirms or refutes the calculator's results.

Let's say your employees spend a total of 50 hours per store each month performing periodic inventory counts. The calculator assumes, based on results from other deployments, that with RFID, it would only take 5 hours. Our calculator assumes that improving inventory accuracy with more frequency cycle counts will increase sales by 5 percent (most pilots and deployments have resulted in a 5 percent to 10 percent increase, but we want to be conservative). When you run your pilot, you might find sales rose 6.5 percent and labor fell from 50 hours to eight. This information can then be entered into the calculator to obtain a more precise ROI estimate and enable a CEO to decide whether a deployment makes sense.

I know some CEOs do not believe RFID can improve sales by 5 percent to 10 percent, even though our research suggests that has been fairly consistent in the deployments about which we've written (and in some that have yet to be made public). Some retailers refuse to believe their inventory accuracy is only at 60 percent, because their IT systems tell them it's much higher. But RFID provides data that shows you what's really going on in your store (some people, I think, just don't want to know).

I ran dozens of what-if scenarios to test the calculator, and it seems pretty clear that RFID can deliver significant benefits in a wide variety of apparel retail formats. If you spend a lot on labor to cycle-count, replenish and keep your inventory accuracy up, you will save more on labor and get less of an uptick in sales. If you spend less on labor and inventory accuracy is low, you will likely save less on labor and get a greater uptick in sales.

But it's interesting to note that either way, the cost of RFID tags doesn't have a significant impact on ROI. And our model assumes that a retailer will cover the cost of the tags, hardware, software and integration. If you can have your suppliers cover the cost of the tags and employ a hosted software solution, you can reduce the implementation cost and get an even more compelling ROI. Whichever route you choose, our ROI calculator can help you determine whether RFID is in fashion for your company.

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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