American Apparel, a vertically integrated clothing manufacturer and retailer based in Los Angeles, has already deployed radio frequency identification at more than 50 of its 285 stores, and expects the rollout to total 100 stores by year’s end. The company reports that the system has not only delivered the improved inventory accuracy levels it had sought, but has also provided some unexpected benefits, including a significant decline in employee theft. These additional benefits are contributing to advantages that offset the cost of borrowing money in order to pay for the solution’s installation at each location, thereby creating immediate benefits for the company.
“Like many retailers, internal theft and process issues account for about 60 percent of our shrink,” says Stacey Shulman, American Apparel’s VP of technology. “RFID, it turns out, affects internal shrink in a profound way. We measure everything, and have accountability of every item. Every item counts, and when we change that culture, employees start treating product better. Internal theft does go down, and process errors go down.”
Examples of process errors that contribute to shrinkage, Shulman says, include receiving errors, moving goods to the sales floor without first creating the proper documentation, receiving items but not moving them to the sales floor, and transferring the wrong products between stores. “RFID allows us to capture these exceptions daily,” she states, “so they can be corrected.”
Within the stores that have deployed the RFID system, internal shrinkage has declined by an average of 55 percent, Shulman says—and, at some stores, by as much as 75 percent. She attributes this decrease to the reduction of process errors, as well as a change in American Apparel’s culture.
“Because we are tracking every item, we are reminding our staff that each and every item has value,” Shulman explains. “I liken it to the bulk-food bins at supermarkets. When you wrap food up in packaging, or measure it in a controlled way, you are telling the consumer this item has value, and most people would never consider opening the package and eating it in the store without paying for the it. But when you stick the items in bulk-food bins, those same people may think nothing of sampling the food. Items that are not regularly measured have a lower perceived value.”
In April 2011, American Apparel reported that it had expected to have 100 of its 285 stores in the United States and around the world equipped with fully functioning RFID systems by the end of this year (see American Apparel Adding 50 More Stores in Aggressive RFID Rollout). Shulman says that given that the savings from using the system virtually covers the deployment cost—American Apparel is leasing the equipment, rather than paying for it upfront with cash—the business would move more quickly, if it could.
“We have a very effective process in place for rolling out the system to new stores,” Shulman says. “We can start the process at 30 new stores a month without adding more staff. We are being slowed down, in all honesty, by constraints among some of our tag and reader suppliers that can’t meet the demand for faster turnaround times on our orders.”
The company’s goal, Shulman notes, is to install RFID technology at all of its retail, distribution and manufacturing sites as quickly as possible. She says she is unable to provide a timeframe regarding when that will happen, however, noting that it will depend on suppliers, as well as on internal resources. The RFID team does not want to put undue stress on normal operations, she says.
American Apparel initially deployed RFID to improve inventory accuracy within its stores, and to more effectively replenish items purchased or stolen. The system has succeeded in achieving an inventory accuracy of 99.8 percent, Shulman says, though she is not sure what the accuracy level might have been without the use of RFID. “We don’t know with certainty what inventory accuracy is in non-RFID stores,” she states. “No one does, until they do a wall-to-wall count. Frankly, you can’t dependably know what your inventory accuracy is until you start measuring it at least weekly.”
Improved replenishment is an important benefit, Shulman says, but it is only one of the advantages that RFID has delivered for American Apparel. “Everything starts with inventory accuracy,” she says. “That is the foundational element. [Higher inventory accuracy] allows us to do things that were never possible, such as target our cycle counts, or allow a customer to order online and pick up the item in the store. With RFID, we know with confidence the item will be in the store.”
At RFID-enabled stores, a cycle count—whereby a store’s staff physical counts the on-hand quantity of a particular product—is performed whenever the point-of-sale system indicates that the store contains a quantity of a certain type of merchandise but the RFID system reports that that product is out of stock. This targeted cycle count allows for constant reconciliation between what the RFID and back-end systems each claim is available in the store.
American Apparel, however, does not plan to rely on RFID as its sole means of combating shoplifting. Instead, it intends to combine the technology with its conventional electronic article surveillance (EAS) system. “I’m not sure RFID will work as an EAS solution,” Shulman says. “We want to combine it with our existing EAS system to deter theft. EAS will help deter external loss [shoplifting], while RFID is targeted toward internal loss. We’ve found that when you combine RFID with EAS, it is at least 30 percent more effective than EAS alone.”
The company is currently working with providers to adopt conventional EAS hard tags that contain built-in RFID tags on a solution that can be rolled out chain-wide.
Another side benefit of RFID, Shulman says, is a reduction in turnover of stockroom associates. Although she does not have figures available, she does note that she has noticed, anecdotally, that a stockroom employee’s average tenure at an RFID-enabled store is longer than at a store that has not deployed the technology.
American Apparel has completed the first phase of its RFID rollout at its high-volume and high-shrinkage stores, including some in London, Paris and other international cities. The next phase, Shulman reports, will be to roll out the technology at its mid-volume stores, as well as at American Apparel outlets within larger department stores, such as Selfridges, in the United Kingdom.
At the same time, the company plans to begin expanding the RFID system’s functionality, such as using it for managing fitting rooms, and for improving customers’ general in-store shopping experience. The firm wants to have higher-quality metrics regarding all of its items and operations, so that it can provide better service to its valued customers.
“We are putting a lot of effort into improving our customer service and shopping experience, both in the store and online,” Shulman says. “To assist these corporate efforts, we will be putting in systems that will tie into RFID to allow us to get real-time alerts on common retail customer service issues, and will assist in creating a more engaging shopping experience for our customers.”
Additionally, American Apparel plans to implement RFID at its distribution center, so that it can quickly audit shipments before they are transported to the company’s stores. This audit will uncover any packing errors, Shulman says, enabling the retailer to correct such mistakes at the source, further reducing the incidence of supply chain process errors.