Through the Trough of Disillusionment

Barriers to the adoption of radio frequency identification technologies are disappearing.
Published: March 31, 2019

U.S. and European retailers are rolling out RFID technologies at an increasing rate in recent years. It has been a long journey since RFID was introduced in retail more than two decades ago. The benefits of RFID in retail operations are well-proven: fewer out-of-stocks, improved efficiency, theft reduction, better inventory control and more. So why was RFID retail adoption so slow—and why is it now accelerating?

We asked U.S. and European retail executives about their experiences in adopting RFID technologies and solutions. Here, we will share the important factors discussed.

Left to right: Narges Kasiri, Gerd Wolfram and G. Scott Erickson

• Prioritize organizational RFID investment.
Budgets are always limited and numerous technology alternatives exist. Spending on big-ticket investments such as RFID is difficult without a long-term vision. Current industry priorities, however, include omnichannel services requiring full visibility, fewer out-of-stocks and greater inventory accuracy, all impossible without RFID. Further, if decision-makers intend to reduce human error—so as to increase efficiency and sales, slash labor costs through employee satisfaction, and delight customers with inventory visibility and smart fitting rooms—all are possible with RFID. Less expensive and more visible technologies, such as digital marketing, may look more attractive in the short term, but they don’t deliver the same long-range results.

• Aim to improve operational efficiency.
RFID enables a retailer to confidently commit store items to online shoppers, knowing the products are there for fulfillment. At the same time, merchandise availability is increased and markdowns are decreased as balanced supply and demand enable the selling of all available supplies from the full network of stores. Similarly, supply chain errors decrease as suppliers ship the correct products to the right stores, audit accuracy increases (with noncompliance rates dropping from 30 percent down to 4 to 6 percent), and consumer trends can be better tracked, matching inventory to demand while introducing engaging shopper experiences.

• Consider economies of scale.
Operational size influences the RFID adoption process. In general, larger-size retail means more scale economies with lower cost per unit. Even so, the denser European supply chain, with fewer distribution centers, enables the technology’s coordination and implementation across the continent when compared to more dispersed U.S. retailers. In addition, the more common vertical integration across the supply chain in Europe (for example, at Marks and Spencer) allows for faster technology adoption, thereby reducing the need to deal with non-affiliated suppliers.

• Reduce concerns about RFID’s technological complexity.
Complexity has diminished over time. Current RFID technology is a new paradigm connecting the physical and digital worlds. Tag design, middleware software and infrastructure have all evolved. The availability of cloud-based storage and services allows retailers to leave some implementation and support complexity to third-party providers. Technology improvements and standardization have been continuous. Technology was a limiting factor years ago, but significant improvements—such as tag maturity, allowing better handling of liquids and metals, or powerful readers with more capabilities—are indicators of user-ready technology. GS1‘s and EPCglobal‘s efforts have also addressed most of the issues on standardizing frequency allocations, tag codes and data exchange.

• Recognize costs but view them in context.
Recurring tag costs and infrastructure costs have fallen over time but are still considerable, especially when compared to investments in alternative technologies, such as enterprise resource planning (ERP) systems. Benefits are more visible, so cost should not be all a retailer sees. RFID technology pays off over time, but if executives are more concerned about quarter-to-quarter costs and revenue reports, they’ll miss the big picture. The long-term returns are the leading justification for retailers’ RFID investment decisions.

• Manage privacy policies according to best practices.
Privacy issues are quite visible these days. In this age of ubiquitous technology and data, with smartphones, social media and many other technologies available, consumers are more comfortable with technology than ever before. Consumer advocacy groups, however, are still concerned with the level of identity and location data available within RFID systems. The greatest concerns are raised in Europe, with its greater sensitivity to consumer privacy issues. Many initiatives and policies, such as the Privacy Impact Assessment (PIA) in 2011, have been developed by the European Commission and other centralized authorities in Europe throughout the last decade. In the United States, however, the lack of a central authority has left privacy issues only partially addressed and still open to industry-driven initiatives. Without a centralized coordination, privacy policies can even be more complicated in the United States if those policies differ between states.

• Gain your competitive advantage.
Retailers can move ahead of the competition when they distinguish themselves by adopting advanced operational technologies. For leading retailers, being the first to adopt a technology is a goal for which they can make a business case to their shareholders. On the other hand, other retailers just follow the leading 5 percent. When those leading retailers announce RFID implementations, other retailers then consider them a safe and proven example to follow.

Eliminating friction points between customers and retailers, and keeping customers happy and sales up: that’s exactly why retailers should turn to RFID. With everything from inventory tracking to smart mirrors, RFID enables unique solutions to everyday retail problems. It’s clear that the business benefits of RFID are plentiful. It can streamline highly manual and labor-intensive processes in warehouses and in-store for picking, packing and receiving by retailers, achieving 99.95 percent inventory accuracy. Retailers enjoy decreased stock-outs, increased sales, real-time accurate visibility and a better customer experience.

RFID awareness and education, however, are still needed to inform retailers about different ways to adopt the technology. Some retailers, for example, have recognized how partial technology implementations (tags and handheld readers without mounting antennas and readers) can bring the majority of valuable benefits to stores. Retailers did encounter many problems: missing tags, tag-reading errors, high implementation costs, constrained flexibility and scalability of RFID solutions, budget overruns, and supplier cooperation, among others. Many of these issues have been resolved. There is now no good reason not to adopt RFID.

Dr. Narges Kasiri is an associate professor of management and a Fulbright Scholar at Ithaca College, in New York. She has been conducting research on RFID in retail for more than 10 years and has published and presented her work at national and international conferences. Her research interests are RFID adoption and post-adoption in retail, cost-benefit analysis of RFID, and the Internet of Things (IoT). Dr. Kasiri holds a Ph.D. degree in management science and information systems from Oklahoma State University.

Dr. Gerd Wolfram is the founder and CEO of IoT Innovation & Consult. He has more than 30 years of experience in IT in an international retail company and is currently working in IoT technology and RFID areas. He is a long-lasting member of national and international committees of GS1 to standardize retail logistics and supply chain processes, a board member of the Business Committee of Standards, and a board member of the EPCglobal Board of Governors (for the standardization of RFID and EPC technologies and applications). He holds a Ph.D. degree from the University of Cologne and is a lecturer of IUBH Bad Honnef on IT architecture and new technologies. To learn more about Dr. Wolfram’s activities, visit his company’s website.

Dr. G. Scott Erickson is a professor and chair of marketing in Ithaca College’s School of Business. He holds a Ph.D. degree from Lehigh University and has been published widely on big data, knowledge management and competitive intelligence. His most recent book, New Methods in Marketing Research and Analysis, was published by Edward Elgar in late 2017, and was written while he was serving as a Fulbright-National Science Foundation Arctic Scholar in Akureyri, Iceland.

The authors would like to thank the Fulbright Foundation for partially funding this research.