Shelf Stock Monitoring Dubbed RFID's First "Strong Business Case"

After years of trials with only the rarest evidence of CFO-friendly RFID ROI, shelf stock monitoring is quickly emerging as "the first major application of RFID in retail with a strong business case," according to a new report from London-based RFID analyst firm IDTechEx.

"Numerous apparel companies have reported increased sales of as much as 20 percent using RFID to monitor shelf stock levels," the report said. "In 2008, IDTechEx research finds that 38 percent of the money spent on RFID in retail is specifically for apparel tagging."

Clothing in particular is proving to be a lucrative RFID segment. "In 2008, the total money spent on RFID tags and systems for apparel will be $68 million, which is a huge 38 percent of the total amount spent by retailers on RFID globally," the report said. "This reflects the surge in activity of apparel tagging given the demonstrated business case by an increased number of retailers. By 2013, the amount spent on apparel RFID will rise to $988 million."

Beyond apparel, though, RFID is still on a bumpy road to a solid business case, the analysts said. "Most other forms of consumer goods beyond apparel are later in adoption of RFID at item level because they are more troublesome technically. This is because so many of them involve metal and water and a greater challenge to RFID pricing because so many of them are much lower in price than apparel," wrote IDTechEx Chairman Peter Harrop. "It is rare for payback calculations to justify a tag costing more than a few percent of the value of the product it is on."

The clothing retailers who have—initially, at least—made those business arguments prove the point, he wrote.

"Marks and Spencer in the U.K. was the first in the world to tag apparel in shops in a big way and, in 2010, it is on track to have these disposable swing tags on all its 350 million items of apparel passing through yearly. The payback, primarily from reducing out-of-stocks, being an unmissable one year in the estimation of IDTechEx," the report said. "This is despite the tag not being interrogated at the checkout and not usually present on returned goods because it is large and the first thing to be removed by the customer after purchase. The company has bought more RFID tags than any other retailer or consumer goods company in the world."

In another example, the report said that American Apparel completed an inventory RFID trial and found that inventory "exceeded 99 percent and sales increased by 15 to 25 percent when all items were available on the floor. The value of each piece of apparel versus the cost of the tag makes a strong payback calculation."