Macy’s leverages RFIDs to prevent inventory distortion

Macy's
Macy’s began RFID implementation in 2008 and saw immediate improvements.

RFIDs can be a valuable tool for ensuring inventory accuracy and enabling store-level fulfillment, according to several recent reports from IHL Group, Kurt Salmon and Tyco Retail Solutions in partnership with the Platt Retail Institute.

Based on research from an IHL Group study, out-of-stocks and overstocks account for an estimated $1.1 trillion problem in the retail industry. Because of this, retailers are cautious in leveraging all item quantities for online sales and store fulfillment options. The resulting risk to the consumer is too high, and the average loss of sales due to inventory inaccuracy is 8.7%.

In a similar study from Kurt Salmon, retailers rated some of their top challenges today: offering more order fulfillment options to shoppers, 55%; gaining better inventory visibility, 33%; and increasing operating profits, 30%.

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However, adopting RFID technology and regular cycle counting processes helps retailers to prevent inventory distortion and can lift inventory accuracy up to 99%. This enhanced accuracy can increase sales by 5% to 25%.

“As today’s consumers continue to seek merchandise where and when they want it, retailers must prioritize the implementation of technology that supports a unified commerce strategy,” said Brent Brown, vice president and general manager, inventory intelligence and IoT, Tyco Retail Solutions. “RFID-based solutions enable retailers to confidently present accurate real-time in-stock positions to meet today’s customer expectations and maximize business outcomes.”

RFID technology gives retailers a fast and accurate way to count inventory, recording the location of items as they move from one facility or position to another by giving each product a fingerprint. Early use of RFID within the supply chain automated the identification and tracking of cases and pallets of inventory, according to Ned McCauley, director of strategic accounts and inventory intelligence at Tyco Retail Solutions.

Apparel retailers see big benefits

But today, item-level tracking has been gaining adoption by apparel retailers.

Ned McCauley

​​​​​​“The processing speed tremendously increases compared to traditional barcode scanning,” McCauley told FierceRetail. “RFID can track the location of items and maintain inventory counts at all stages of the supply chain, in real time. Cycle counting enables a retailer to update inventory 25 times faster than with manual counts. Instead of scanning one item at a time, retailers with RFID can read information from all items in the working range at the same time. However, using a handheld RFID reader, retailers can take more often and get more accurate inventory data, leading to better replenishment and ultimately greater sales as customers find the items they want, when they want them.”

The Platt Retail Institute released quantifiable benefits based on Macy’s and its RFID program. Macy’s is a pioneer in Tyco Retail’s RFID-enabled inventory solution. Inventory accuracy results indicated that Macy’s was accumulating inventory variance at a rate of between 4% and 5% monthly before implementing RFID and monthly cycle counts. With regular RFID cycle counts, the variance was maintained at an overall 2% to 5%, with fewer markdowns across the company’s inventory. 

In addition, every unit of merchandise selected for RFID resulted in quantifiable increases in sales, units picked and order fulfillment rates. This is important for Macy’s, as almost 20% of the company’s in-store merchandise exists as single units. The company also saw measurable savings in transportation costs, markdowns and inventory levels.

McCauley noted that Macy’s began RFID implementation back in 2008. The retailer started with the foundational use case of cycle counting inventory and saw immediate improvements.

Since then, Macy’s has used RFID in four other scenarios:

Display audit. The use of RFID has substantially improved the rate of display compliance. The rate of not being displayed was in the 4% to 6% range, versus a self-reported rate of 30% prior to the implementation of RFID.

Inventory accuracy. Macy’s was accumulating inventory variance at a rate of 4% to 5% monthly. When implementing RFID cycle mounts, the variance was at a 2% to 4.5%, with fewer markdowns across inventory.

Single unit fulfillment. Macy’s conducted a pilot project with women’s dresses. Test stores significantly outperformed control stores in terms of fulfillment sales, units picked and units sold. The data also showed that the ability to locate and sell RFID-enabled merchandise is higher than for non-RFID enabled items.

Back-to-front selling floor replenishment. Macy’s has achieved a near real-time approach due to increased merchandise visibility. By scanning either the back room or on-the-floor merchandise, items that are detected as not on display but should be then become part of a file that generates a pick list for sales associate merchandise fill-in. Findings show a strong correlation between sales and units picked. In other words, items placed on display sell at a higher rate than those not displayed.

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“With RFID, retailers are using their own stores as fulfillment centers to satisfy growth of online sales. Early adopters, like Macy’s and Lululemon, are seeing the benefits of RFID technology to greatly enhance the ability to access inventory quickly across all channels and locations for ‘buy online and pick up in store’ (BOPIS) and ship-from-store fulfillment to improve the customer experience,” McCauley said.

However, a lot of retailers have not reached this satisfaction yet, as the competition for technology dollars is fierce. Retailers have a number of competing initiatives that demand their attention during this period of disruption.

Moving forward, McCauley says that RFID will continue to play an important role for retailers.

“To satisfy customers in this connected, always-on, always-open world of unified commerce, retailers need visibility into inventory availability throughout the store and across the supply chain. RFID is the only technology that gives retailers the knowledge of exactly where products are located, making merchandise available anytime, anywhere. Unified commerce is table stakes, so it’s imperative that retailers know the precise location of their inventory at all times,” he said.

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