Widening the Gap

Stronger retailers have an opportunity not just to survive the current downturn, but also to greatly distance themselves from the competition.
Published: July 23, 2009

Last week, the New York Times ran an article about vacant stores in Manhattan (see Stores Go Dark Where Buyers Once Roamed). The story indicated the vacancy rate has risen to 6.5 percent—the highest since the early 1990s—but is more than 15 percent on Fifth Avenue, between 42nd Street and 49th Street, a once highly sought-out stretch just south of Saks Fifth Avenue. This made me think of Jack Welch’s dictum that an economic downturn is the best time to “widen the gap” with your competitors.

Almost all retailers have been hit hard by the economic downturn, as consumers cut back on their discretionary spending. But those with stronger financial positions can move into vacant storefronts in areas that were either too expensive or unavailable. That will put them in a good position to boost sales when the economy does pick up again.

Welch, of course, also suggested that businesses invest in technology to gain an edge on competitors that are hunkered down, trying to survive. The 2009 Store Systems Study by IHL Group and RIS found that 45 percent of companies responding to the annual survey were increasing their IT budgets, and only 25 percent said they were cutting their IT budgets. In terms of priorities, 58 percent responded that getting store associates better tools was a high priority. Nearly 40 percent said inventory visibility was a high priority, and 36 percent cited both speed through checkout and reducing out-of-stocks as high priorities.

RFID can help with all of these issues. Price optimization is always a challenge, but having better inventory data can improve price optimization. If, for example, goods are not being replenished in a timely manner, it might appear that they are selling more slowly than they really are, and might lead a company to mark the items down. An interactive tag with electronic paper displaying the price could be used to increase the price on hot items, something that’s not easy to do today.

I’m not sure what kinds of tools retailers want to give their associates, but it seems to me that providing them with real-time information regarding what’s in their store and where it’s located would be critical. A study conducted by researchers at the Wharton School of the University of Pennsylvania has found that as much as 30 percent of the time, customers leave a store without the product they came to purchase, even though retailers believe their out-of-stock rate is much lower. One cause cited was that employees couldn’t locate the items they needed, even though the store’s inventory said they was available.

It’s a little surprising that reducing out-of-stocks was only cited as a priority by 36 percent of respondents. I would image that if you could boost sales by reducing out-of-stocks, it would be critical to do so during a downturn. RFID has been proven at American Apparel, Wal-Mart and other retail stores to reduce out-of-stocks.

Given that RFID can address so many retailer priorities, it’s a wonder so few are actively exploring the technology’s potential benefits. Jack Welch is one of the most admired business leaders in America, but it seems too few executives follow his advice.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog or click here.