Large Apparel Retailers, Wholesalers See Sharp Rise in RFID Adoption, ROI

By Claire Swedberg

A Kurt Salmon survey of 60 European and U.S. companies found that the adoption rate shot up from 34 percent in 2014 to 73 percent in 2016, driven by omnichannel growth and a high return on investment for multiple use cases.

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The rate of adoption for radio frequency identification in the retail apparel, footwear and accessories market has more than doubled during the past two years, according to a survey of 60 European and U.S. retailers and wholesalers, conducted by management and strategy consulting firm Kurt Salmon. The company’s first large retail study, carried out in 2014, found that 34 percent of respondents had either implemented or were currently implementing or piloting RFID (see Many RFID-Adopting Retailers Report More Than 5 Percent Improvement in Gross Margins). When Kurt Salmon conducted a similar survey two years later, in May 2016, that rate grew to 73 percent. Of the 16 respondents not using RFID, 86 percent indicated that management at their company was focused on other priorities, while only 2 percent felt that RFID would not provide substantial benefits.

The survey’s results were published this month in a report titled “The Kurt Salmon RFID in Retail Study 2016.”

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“We went into the [2016] survey with open minds,” says Jason Sain, Kurt Salmon’s senior manager and one of the report’s authors, “but we were intrigued that there has been such a huge acceleration in growth.” Much of that growth, he notes, results from retailers’ need to offer products for sale through multiple channels. “RFID is an enabling technology that can support retailers to compete in the digital sales environment,” Sain says.

Numerous metrics were collected in the 2016 survey, Sain says, but the most significant “is the pure adoption level. In 2014, adoption was only 34 percent; now it’s over 70 percent—that’s more than 100 percent growth. That was a huge takeaway.” The second key change in survey responses during the past two years, he says, was in the reported return on investment (ROI) of RFID adopters. In 2014, back-room to front-of-store inventory accuracy (the correct count of goods on the sales floor and in the back room, enabling replenishment in the store front to occur in a timely fashion) provided the single key ROI.

This year, there were eight use cases that showed a positive ROI, including reduced time and labor costs (yielding a 12.0 percent ROI), improved back-room to front-of-store inventory accuracy (10.3 percent), self-checkout (10.0 percent), fewer out-of-stocks (8.7 percent), omnichannel fulfillment support (8.1 percent) and reduced shrinkage (5.6 percent).

For its 2016 report, Kurt Salmon partnered with EKN Research to interview 60 apparel industry executives throughout the United States and Europe. Interviews were conducted online, by phone and in person, during May. The respondents’ companies each reported annual sales of at least $500 million, with 40 percent claiming more than $1 billion in yearly revenue. Forty-five percent of respondents’ companies were apparel or specialty retailers, 33 percent were wholesalers, and 22 percent were fashion, general-merchandise, department-store or accessories retailers.

Kurt Salmon’s 2014 survey had found that for those apparel, footwear and accessory (soft line) retailers who adopted RFID, the gross margins were increased by 5 percent, while the primary reported benefit was improved back-room to sales-floor inventory accuracy, as well as improved replenishment rates based on that accuracy. At that time, a few retailers had also been experimenting with interactive solutions, such as smart fitting rooms and magic mirrors. Omnichannel adoption was an interest, Sain reports, but not a primary issue for companies at that time.

During the survey carried out two years later, the majority of respondents indicated that their companies had adopted RFID, and many respondents (more than 50 percent) reported that the key drivers for the technology’s adoption had included omnichannel requirements, improved promotion accuracy, personalized marketing, better inventory visibility and increased operating profits. The respondents reported that their companies wanted to enable customers to buy products online, pick them up at stores or have them shipped from the nearest location. Fifty-five percent of respondents rated their top challenge as increasing ordering options for their customers.

The survey asked for metrics in specific categories before and after the implementation of RFID. Of those using the technology, the study found that inventory accuracy increased, on average, to 84.5 percent, from 67.4 percent prior to the technology’s deployment. Customer satisfaction grew to 71.7 percent, from 64.6 percent. Store out-of-stocks, on the other hand, dropped to 9.8 percent, from 16.5 percent. Profit margins rose from 8.9 percent (prior to RFID’s use) to 14.3 percent, while the average markdowns declined by 3 percentage points, to 11.9 percent with the use of RFID.

Customer engagement is an area of focus for respondents. Retailers are seeking ways in which to bring shoppers into brick-and-mortar stores and offer them key benefits for shopping onsite. RFID-enabled enticements can include self-checkout stations, as well as smart fitting rooms and mirrors.

The respondents further indicated that they expect their spending on RFID technology to grow by 22 percent between 2015 and 2018.

However, Kurt Salmon found, the adoption rate was highest for the largest retailers. Only 9 percent of retailers with revenues exceeding $1 billion that piloted RFID have thus far decided against implementation, while 44 percent of retailers with revenues between $500 million and $1 billion did not deploy RFID after piloting it. Of the retailers who have not implemented RFID, 25 percent said cost was the primary factor, while 75 percent indicated that they were still awaiting broader industry adoption.

Many respondents had trouble quantifying RFID’s return on investment for such use cases as customer engagement and self-checkout. Half of all those working for retailers that had deployed RFID indicated not knowing what the customer engagement and self-checkout ROI was at the time. Sain predicts that retailers will focus on these categories, as well as measuring the results and additional RFID use cases in the future.

However, Sain says, there are other retail sectors that are not increasing RFID adoptions at such a high rate. For instance, hard line products, such as electronics and various other non-apparel goods, are still adopting RFID at a lower rate. Smaller companies are much less likely to have already adopted the technology.

A full copy of the 2016 report is available online. Kurt Salmon intends to conduct its next RFID-related survey in 2018, in order to further assess the changes in retailers’ RFID use and use cases.