Missing: Specialty Apparel Retailers

By Marshall Kay

With the most to gain from item-level tagging, why aren’t these retailers giving RFID the attention it deserves?

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July 31, 2006–Apparel and footwear retailers can get many valuable benefits, particularly at the store level, from item-level RFID. Those are the primary findings of studies conducted by Kurt Salmon Associates (KSA), addressed at length in the white paper “Moving Forward With Item-Level RFID in Apparel & Footwear.” But no class of apparel retailers stands to gain as much from item-level RFID within the next few years as such vertically integrated specialty retailers as Aeropostale, Banana Republic and Talbots.

Oddly, many of the biggest names in this sector still have not stepped up to the plate. KSA has examined this phenomenon in detail—but before we look at the root causes, some of which are interrelated, here are the three reasons item-level RFID should be particularly attractive to specialty apparel retailers.




Specialty retailers have the most control over their end-to-end supply chain. Specialty retailers design, source and sell only their own merchandise. Unlike a department store or mass merchant, the specialty retailer is spared the inconvenience and delay of securing the cooperation and participation of the branded manufacturer in any program to tag garments in mass quantity. Also avoided is the potentially thorny question of tag cost apportionment (between the retailer and the branded manufacturer). Instead, the specialty retailer—the logical party to absorb the modest tag cost—can go directly to the source manufacturer and dictate its specific product tagging requirements. (Department stores enjoy a similar opportunity with their private label merchandise.)

In-store deployment of item-level RFID is simplest within specialty stores. Department stores and mass merchants have disparate merchandise departments on their selling floors. That makes extending RFID-enabled processes across a critical mass of selling zones more cumbersome because it requires greater coordination. By comparison, the selling floor of a specialty retailer is more homogeneous. Merchandise recovery processes are less variable, making it easier for specialty retailers to introduce and extend new practices, especially those rolled out on a category-by-category basis.

Specialty retailers have the strongest financial incentive to manage inventory with RFID. Specialty retailers bear full financial responsibility for un-saleable merchandise and inventory in the pipeline. They, therefore, have the greatest incentive to use RFID to maximize sell-through, and to minimize the number of garments entering the dreaded markdown cycle. They also have the strongest incentive to streamline the amount of inventory in their pipelines—something the first wave of RFID adopters have been able to accomplish.

Given these potential benefits, why have specialty retailers been slow to wake up to and adopt RFID? KSA sees five main reasons, detailed on the following pages.

Absence of a “burning platform.” In the mass merchant vertical, Wal-Mart’s mandate has forced its suppliers—and competitors—to begin deploying RFID and integrating it into their business operations. But there is no equivalent “burning platform” in the specialty vertical, where retailers control their own destiny and are not subject to mandates. The retailer most likely to influence activity in this sector is GAP Inc., but this company has been surprisingly inactive since its initial RFID pilot back in 2001, despite the fact that it achieved positive business results. If GAP were to invigorate its RFID activity substantially, it would not exert pressure on retailers that do not compete directly with them.

A dearth of reports on the success of early adopters. Some excellent results have been observed in the first wave of item-level store pilots, but much of the data has not been made publicly available. Two notable exceptions are Marks & Spencer and Levi Strauss & Co., and both deserve credit for their willingness to share their experiences with peer companies. The absence of published reports might lead some executives to form the incorrect conclusion that RFID is not technically reliable or economical, or that it’s too difficult to deploy. It also leaves executives in the dark about the degree to which RFID investigation and planning are being conducted by other retailers.

Misunderstanding the RFID articles that have been published. Just like a sculptor has a large array of chisels to work with, RFID applications come in many forms. Pallet, case and item-level deployments are very different, and much depends on the merchandise category and retail format in which the deployment occurs. Many of these nuances are not readily apparent to the RFID beginner, and conclusions drawn in one context often have little bearing on others. When approached to discuss RFID, the CIO of one specialty apparel chain recently declared, “I know all about RFID; that’s the Wal-Mart thing.” In his case, RFID really is the “Levis and Marks & Spencer thing.”

Lack of CEO awareness. RFID is an inherently cross-functional initiative with a significant financial upside. And yet, too often it is viewed simply as a technology trend—something to be monitored by the IT department and managed by the CIO—rather than a pivotal strategic opportunity that ought to be seized by the company. Alarmingly, store operations organizations, which arguably stand to benefit the most from early stage RFID deployment, typically know virtually nothing about the technology. One retail IT executive confided, “We wouldn’t let store operations attend an RFID conference without us because we know that RFID is something they will want.” There is very little incentive for any individual department to elevate RFID single-handedly on the corporate agenda, and we know of several instances where corporate politics is freezing the pace of RFID activity. A “sell side” analyst at a major investment bank recently observed, “Unless you start with the CEO, you will be wasting a lot of time.” Sadly, as many RFID vendors can attest, this has too often proven to be the case.

Lack of investor awareness. The investor community is just beginning to recognize that RFID is a game changer, on par with the bar code and the Internet. The “sell side” analysts who monitor the specialty retail sector, and the large investors they advise, are only now learning about the impact RFID will have as a driver of financial performance. As they become more aware, they are likely to press specialty retailers to develop and communicate their plans for using RFID in their stores. Had this process started sooner, RFID would, no doubt, be on the radar screens of more specialty retail CEOs. The investment community needs to elevate RFID on the retail agenda because internal stakeholders are unlikely to elevate and drive RFID on their own.

Specialty retailers that drag their feet on RFID will, each year, leave tens of millions of dollars of operating income sitting on the table. Imagine if the retail community had elected to ignore the Internet for over 10 years, only beginning to use it in 2005. We run precisely that risk with item-level RFID, where readiness isn’t automatically triggering specialty retail adoption. That’s why it’s imperative that specialty retailers begin giving RFID the attention it deserves.

How can specialty retailers get in the game? A small first step would be to join one of the industry working groups—either the Apparel/Footwear RFID/EPC committee run jointly by the Voluntary Interindustry Commerce Solutions Association (VICS) and the American Apparel & Footwear Association (AAFA), or EPCglobal’s Business Action Group for Apparel, Fashion & Footwear. The next step would be to allocate funds and personnel for in-store RFID pilots in 2007. Consulting firms that understand RFID and have extensive store operations experience can play a valuable role in planning and executing these pilots, and mapping out a roadmap for future deployment.

Finally, we strongly encourage specialty retailers to register for the RFID Journal—AAFA Apparel & Footwear Summit, being held in New York City on August 15-16, and similar future events. The VICS/AAFA and EPCglobal working groups will be meeting in the area that week too, making it harder than ever to justify non-attendance.


Marshall Kay (312-286-4944) is an RFID specialist and retail strategist at global management consulting firm Kurt Salmon Associates. He has helped retailers in North America, Europe and Asia create value using RFID. Kurt Salmon Associates focuses exclusively on the retail, consumer products and health-care industries.