Item-level radio frequency identification tags used for inventory control can deliver significant revenue uplift and double-digit return on investment depending on the category in which they are used.
RFID's greatest benefits accrue to categories with a complex assortment of size and style, according to a recent white paper from ChainLink Research. The report, "Understanding Real-World ROI for RFID in Retail: Characteristics of Good Candidates for RFID," found that two such categories are denim jeans and women's intimates. These have multiple variables of size, style and color.
An apparel retailer reported an average revenue increase with RFID of 13 percent across all categories, but saw denim rise by 18 percent and lingerie by 30 percent.
For example, on the e-commerce site of a large discount chain, a search for "denim jeans" brings up nearly 400 styles offered in an array of waist and inseam sizes as well as different colors and finishes. This adds up to over 5,000 stock-keeping units (SKUs) in the category.
There are similar results when the site of a mid-range department store chain is searched for "bras." This generates 750 hits in dozens of size and color combinations, and thus thousands of SKUs.
The complexity of these categories mean many opportunities for errors that can lead to out-of-stocks, the report said. This becomes more important in an omnichannel environment where RFID is the key to inventory accuracy, said Randy Dunn, director of global sales and professional services at Tyco Retail Solutions, the sponsor for the white paper.
"RFID has quickly proven itself a viable enabler to solving one of the retail industry's most notorious problems: inventory accuracy," Dunn told FierceRetailIT. "RFID technology is really the only way to ensure nearly 99% inventory accuracy. Without it omnichannel fulfillment is just wishful thinking."
The adoption of RFID technology by retailers was slower than expected because of low awareness levels about ROI, technology skepticism and concerns regarding data privacy.
"Over the past 18 months, however, retailers have slowly started to witness the benefits and specific business case examples of RFID, many of which have centered on inventory as retailers evolve in an omnichannel world. Two high-profile retailers successfully using the technology include Macy's and Inditex," Dunn said. Inditex is based in Spain and has over 6,460 stores in 88 markets. Both have moved far beyond initial pilots into chain-wide deployments.
There are three fundamental reasons for the resurgence of RFID, said Ann Grackin, ChainLink's CEO.
Significantly improved technology. "Pricing is better. Read-rates and accuracy has gone up. And there are designs of tags specific for a myriad of product categories from apparel, to cosmetics, jewelry and on-metal products as well as tamper-proof tags," Grackin said.
Positive retailer experiences. "Pilots have proven successful. Deployments are more practical. And the retailers' model has been changing. With changes in merchandise strategy, omnichannel fulfillment, etc., retailers need new tools, and RFID plays an important part," she said.
Viable solutions. "Today there are whole stack solutions or system integrators that can make solutions work. The market has, to some degree, gone beyond just thinking about the chip's technical statistics and looks at the whole process of the business," Grackin added.
Inventory accuracy has been the cornerstone of some of the most successful cases of RFID use, Dunn said. "In today's omnichannel environment, the last thing a retailer wants to do is to tell a customer that they can't fulfill an order, the product can't be found, or it simply isn't available for pickup. RFID and item-level tagging fixed much of what was broken in those scenarios related to accuracy and visibility, and then provided an additional surprising benefit—better visibility into shrink and causes of loss."
And there's even more. "By combining store data about inventory, traffic and loss, retailers can gain new insights to identify sources of fraud, shoplifting and shrink like never before," Dunn said.
The RFID market is here to stay, according to Grackin. "With introductions of highly functional and inexpensive source tagging, tags for cosmetics, as well as new retailers signing up for RFID, the market will continue to grow."
ChainLink estimates the RFID market will increase 29 percent each year for the foreseeable future.
The question for retailers today is no longer a matter of if they will use RFID, but how or where is their next use for the technology. Yet many are still sitting on the fence. "That will be the next challenge for RFID providers. And that may produce some very innovative sales and service models in the future to move those retailers off the fence," Grackin said.
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