Should I Employ RFID to Manage Inventory at My Retail Shops?

What are the advantages of using radio frequency identification over bar codes?

—Name withheld

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The short answer is that it would allow you to collect much more information without having to spend a small fortune on labor. What's more, the amassed data would enable you to improve inventory accuracy, replenish stock more efficiently, merchandise more effectively and so forth.

Presently, most retailers take a complete inventory count of everything within their store once or twice annually, and also perform periodic cycle counts. Inventory accuracy is typically around 65 percent, which means there are items on the floor that a retailer does not know are there, and items missing that the store thinks are there. This leads to out-of-stocks and lost sales. Moreover, replenishment is often carried out in a haphazard way. Items are sold and a replenishment list is generated, but when staff members are helping customers, they don't have time to replenish. So when the store is at its busiest and potential sales are highest, goods are often not being replenished, with no way to confirm that they have been. If workers indicate on their handheld terminals that they have picked items and brought them to the floor, the system will assume those goods are available to customers, even when they are not.

Radio frequency identification allows a retailer to count inventory every week, and to conduct cycle counts daily, at a relatively low incremental cost. Once a store has invested in the system, it might take a single sales associate only an hour to complete an inventory count of the entire store. This brings inventory accuracy up to 95 percent or better, and means that items are on the sales floor when people want to buy them. This is also valuable for omni-channel retailing, in which a customer orders products online and then picks them up at the store.

In addition, RFID can improve store execution, since a retailer can set up readers between the back of the store and the floor. If the wrong item is replenished, its tag can be read automatically and the worker will be alerted to the problem. And if a product is not replenished within an hour, a manager can be alerted. When deliveries arrive at the back of the store, the tags can be interrogated, enabling the business to identify items currently out of stock and rush them to the floor.

RFID can also help with merchandising. If an item fails to sell well, it could be because the style was unattractive, the cut was not right or the item was not on the store floor consistently. It is difficult to know exactly what the root cause was. But if a product is always in stock and does not sell, you then know the problem was not store execution. If the item was tried on a lot but not purchased, you know the style is attractive but that there is a problem with the cut. And if it is never picked up and tried on at all, you know the problem is with the style, so you can tell your buyers not to reorder that item.

There are many other subsidiary benefits that RFID can deliver, but there is not enough space to go into them all here. I encourage you to download our RFID Fashion Retail ROI Calculator and input your numbers to project your store's potential benefits.

—Mark Roberti, Founder and Editor, RFID Journal