While RFID in the retail world once conjure up images of tagged boxes and pallets in store rooms and warehouses, the technology has come a long way since then, according to a survey conducted by research firm Aberdeen Group. A report, entitled “Item-Level RFID Tagging in Retail, Improving Efficiency, Visibility Loss Prevention and Profit,” based on a survey and underwritten by Checkpoint Systems and Motorola, finds that a sizeable number of retailers are using—or soon plan to deploy—RFID tags at the item level. The primary incentive, they state, is inventory accuracy—knowing what is in stock, and ensuring customers do not leave a store empty-handed because an item they want is missing.
“That’s the killer app—inventory visibility and accuracy,” says Russell Klein, Aberdeen’s VP of IT research and one of the report’s co-authors. The changing behavior of shoppers, he says, as well as the benefits RFID technology provides in inventory visibility, are what the study’s respondents cited as their motivation to adopt RFID solutions.
The Aberdeen survey included 125 executives, managers and other personnel working for retailers that all had some level of interest in—or had already adopted—RFID technology, but that fell into one of three levels of maturity in terms of RFID adoption, based on a score derived from specific performance criteria: Best-in-Class (the top 20 percent of performance scorers, with a mean inventory system accuracy of 92 percent, defined as the percent of stock-keeping units in the inventory system whose on-hand item count matches the actual item count in the story), Average (the middle 50 percent, with a mean inventory accuracy of 71 percent) and Laggards (with a mean inventory accuracy of 41 percent).
The companies come from North America, Europe and Asia, Klein says, and represent retailers of apparel, furniture, jewelry and pharmaceutical products, as well as operators of big-box stores. These firms responded to a questionnaire, while some also participated in follow-up interviews with Aberdeen researchers. The study finds that sellers of apparel and footwear lead in adoption over other retailers, with fast-food restaurants (which could use RFID to manage first-in, first-out semi-perishable food), leisure/entertainment and hospitality companies lagging the furthest behind.
The two overriding factors driving RFID adoption for inventory visibility, Klein says, are shoppers’ behavior and the technology’s lower price and higher performance. When it comes to shoppers, he notes, it is more important than ever that retailers avoid out-of-stocks. Today’s consumers often order products online, then drive to the nearest store to pick up their purchase. More than ever, in that scenario—in which a retail store has committed to having a particular item in stock—having an item missing from the shelf due to inaccurate inventory counts loses a store its customers. “There is just no room left for distortion in inventory counts,” Klein says. “You can measure it in soft dollars as customer loyalty,” he adds, noting that the competition is finding ways to be more accurate in their own inventory. What the respondents told Aberdeen, he says, is that, “inventory accuracy is what it’s all about.”
The Best-in-Class respondents, two-thirds of whom are already employing RFID, were those that have undertaken specific strategic actions to integrate RFID data with other business processes, and that measure performance of an RFID system by calculating the cost versus benefits of RFID against alternative solutions, and by comparing the accuracy of manual inventory tracking to RFID. The Best-in-Class companies were also more likely to place a high priority on adhering to industry standards such as Electronic Product Codes (EPC) and EPC Information Services (EPCIS), and were more likely to monitor the compliance of their RFID initiatives with government and trading-partner mandates.
Because technology costs have dropped, Klein says, respondents indicated they selected their technology vendors based on the capability of a particular vendor’s RFID solution to integrate with other applications, as well as that firm’s success in similar projects, more than on the price of the hardware or software involved in their deployments.
In the Aberdeen report, Chuck Lasley, the director of merchandising and supply chain applications at Dillard’s, summed up the results of a University of Arkansas study of an RFID pilot the retailer carried out in 2009 (see Dillard’s, U. of Ark. Study Quantifies RFID’s Superiority to Manual Inventory Counts), noting, “We found inventory accuracy of our pilot merchandise could improve by 17 percent in our pilot stores using either barcode scanning or RFID. But we timed individuals doing the activity. It took me 10 minutes to do an RFID cycle count while it took a team of five employees using barcode scanners three hours and 45 minutes collectively.” He added that, “There was a 96 percent time savings in cycle count with improved accuracy using RFID. This could enable more frequent cycle counts and inventory adjustments.”
Of the Best-in-Class responders, 22 percent indicated they are currently utilizing item-level inventory tagging, while 18 percent plan to implement it within 12 months (though they did not indicate whether they would be implementing item-level inventory tagging for the first time, or whether this planned implementation was an expansion of a previous item-level inventory-tagging deployment), and 32 percent plan to implement item-level tagging more than 12 months from now. Seventeen percent reported they were using handheld RFID readers, 24 percent plan to do so in 12 months, and 40 percent intend to utilize handhelds beyond that point.
Just as interesting, Klein says, is the finding that retailers have begun leveraging their item-level RFID deployments to do more than conduct inventory and prevent out-of-stocks. Fourteen percent of the Best-in-Class responders said they have deployed RFID-enabled information for price or product information checking, with 5 percent intending to do so in the next 12 months; 10 percent of the Best-in-Class group indicated they have deployed RFID-enabled self-checkout systems, with 5 percent planning to do so in the next 12 months; 10 percent have deployed RFID-enabled electronic article surveillance (EAS) systems, with 14 percent intending to do so in the next 12 months; and 5 percent deployed RFID-enabled fitting rooms, with 14 percent planning to do so in the next 12 months.
In its report based on the survey, Aberdeen recommends that users of RFID make inventory data available to knowledgeable staff members in real time, and that the employees utilize the information for business-process improvements. Further use of an existing RFID system is also important, Klein adds, extending the technology beyond inventory tracking to allowing self-service, or other service improvements for customers. One real-life example he cites is a high-end jeans retailer that employs RFID tags on its clothing to provide continued service to its customers. Although he declines to name the company, he says it provides special services with the jeans purchased at its boutiques; for example, customers can bring the pants back to the boutique to be pressed and cleaned. An RFID tag sewn into the jeans is read by the store’s staff when they are brought in, in order to confirm that they are products from that boutique, and are thus eligible for cleaning and pressing.
An RFID system, once in place, can also be used to optimize the point of sale (POS), by making the process of purchasing items faster and more accurate with an RFID reader in lieu of a bar-code scanner. Bar codes require that workers scan each tag, Klein says, and a tag could be lost in other purchases and therefore not be rung up. RFID can also be used for security purposes—and in some cases, he says, RFID systems have been adopted primarily for that purpose. However, he notes, such installations do not generate a return on investment as quickly as those intended to solve the problem of inventory accuracy first, with POS and security brought in as a secondary solution.
“Our data shows that more than half (57 percent) of retailers that use or have plans to use RFID prefer to employ the technology at the item level,” Klein indicates in his report. “Indeed, many will tell you that RFID at the case and/or pallet level is a waste of time and money.” Most commonly, the report finds, tags are being attached to merchandise most frequently—69 percent of the time—at the source (that is, at the point of manufacture).
The results of the study should be good news for the RFID technology vendors that read it, Klein says, noting, “I think it’s fuel for the fire. They already know they’re on to something” with item-level tagging. “The price point of technology is coming down, the value is coming up, the technology is faster and more reliable… All the old objections are starting to be no longer valid.”
The report is available to the public for free at the Aberdeen Web site.