Isn’t it interesting that the very solution that can save your stores from the onslaught of showrooming lies in a technology created before World War II? This same technology helps level the playing field with Amazon and prepares the foundation to best compete in the rapidly growing Internet of Things (IoT) marketplace.
We’re talking about Radio Frequency Identification (RFID). With this technology, you can gain the real-time visibility needed to maximize inventory accuracy and create seamless customer commerce experiences — regardless of how an item is ordered. These benefits can help retailers maximize profits and realize a substantial Return on Working Capital (ROWC).
Despite the obvious link between inventory accuracy and profitability, RFID has had difficulty gaining mass adoption. First introduced to retail in the late 1980s, few retailers have taken advantage of the intelligence and sustainability this technology offers – even as retailers have grasped for solutions that enable omni-channel shopping. Until now.
The time has come for retailers to look beyond omni-channel rhetoric and embrace a basic requirement for achieving a circular shopping experience, and maximizing inventory accuracy for their organizations. Let’s take a fresh, objective look at item-level RFID, the powerful yet simple technology that provides an essential, foundational capability in this seismic retail industry. In fact, the growing clash between online, mobile and physical stores underscores the need for accurate inventory visibility and the untapped opportunities this technology can generate for a truly seamless, integrated retail experience.
Just as the Point-of-Sale (POS) was the platform for retail merchandising systems, RFID is now the keystone for circular commerce and a powerful tool that can help preserve the value of the store. It’s time to revisit any outdated conceptions that RFID is either too expensive and/or just another project for your overburdened IT team. Today’s commerce is putting extreme pressure on retailers without end-to-end inventory visibility, and it will only intensify as consumers demand to shop whenever, wherever and however they choose with the recurring fundamental question: “Is this item or size available, where can I get it and when can I expect it?”
“RFID should not be viewed as a ‘project’ [but as] foundational to enable many of the projects retailers must undertake to adequately satisfy today’s consumer,” stated a report titled 2016 State of RFID Adoption Among U.S. Apparel Retailers1 from Auburn University’s RFID Lab. “Inventory accuracy is a requirement for omni-channel and retailers simply cannot efficiently achieve a high level of inventory accuracy without RFID.”
Macy’s is among the retailers who agree: “RFID is your foundational ‘air supply’ to delivering an omni-channel promise,” asserted Peter Longo, president of operations and logistics for Macy’s2. But not long ago, Macy’s doubted the need for RFID, even when faced with questions such as: “Do I have the requested item? If so, where is it?” Today, with item-level RFID, Macy’s and other retailers can assert, “You want this? We have it! You can buy it here today or have it on your doorstep in just a few days.”
And lululemon agrees that RFID is “a powerful tool in creating seamless guest experiences across all channels and has greatly enhanced our ability to access inventory quickly across all channels and locations,” stated Laurent Potdevin, CEO of lululemon3.
With item-level RFID fully deployed across its North American stores, lululemon now enjoys 98% store-level inventory accuracy, and all the ripple effects that the degree of accuracy has on Seamless Circular Commerce4, customer satisfaction and improving ROWC.
If you, too, are committed to saving your physical stores but concerned they are losing relevance, read on to see how retailers, like Macy’s and lululemon, are using this technology to get store- and enterprise-wide inventory – as well as capital – working for them again.
Introduction: Consider RFID from a Different Angle
We’ve all read claims that RFID can enhance market position, reduce markdowns, improve net promoter scores (NPS) and more. So why have so many retailers hung back on adoption? Perhaps because these claims were considered too theoretical, experimental and most importantly, too costly. Perhaps the need to know each item available for sale across the enterprise in real time seemed too granular. Or perhaps historic acceptance of inventory shortage lulled many into a margin of error acceptance mindset. Even retailers that considered RFID required large scale tests to prove the case.
This white paper helps validate the commanding benefits of RFID by studying real solutions in place – not academic theories.
It showcases insights extracted from the retail community where RFID is already part of the arsenal. It will also demonstrate how major retailers are leveraging this powerful technology to achieve the true inventory intelligence required to keep their stores relevant. Their RFID initiatives allowed them to transform omni-channel logjams of competing agendas into more integrated organizations. They now have the tools to prepare for the future of commerce and are generating better Return on Working Capital (ROWC).
As this white paper substantiates, RFID technology solutions are built on a business value framework that helps:
• Improve customer satisfaction by creating harmonious commerce experiences across all touchpoints.
• Create business agility to profitably compete against online retailers.
• Impact and improve working capital, providing higher returns on a retailer’s key asset — inventory.
Imagine wielding the power to create amazing in-store experiences by pinpointing incoming, existing and outgoing inventory – while increasing e-commerce revenue. Imagine a real-time, accurate view of inventory assets anywhere they’re stocked or being shipped, generated in a fraction of the time once required. And improving labor savings and compliance with a quick 100% audit every morning, in every store. And replacing liabilities like out-of-stocks and lost revenue with on-shelf availability, improved sales and margins. And improving working capital as inventories are balanced to better mirror true demand.
These are no imaginary dreams… they are all possible. Read on to learn from Macy’s and lululemon’s real experiences with RFID.
The Evolution of Seamless Circular Commerce
Today’s consumers search, consider, evaluate, buy, review, advocate and critique, then restart that process, anywhere along an exploding path-to-purchase. That path may start, then continue with myriad touchpoints allowed by the Internet of Things – whether mobile, web, Pinterest, in-store, Instagram and/or intersections – along which consumers are leaving powerful, incisive data footprints. Smart retailers use these footprints to take the next step in a customer’s journey. This creates an ecosystem of open, relationship-building interactions, not just transactions. They keep the life value equation going by replacing linear snippets of problem-solving with Seamless Circular Commerce4, an advanced, data-rich and self-perpetuating model requiring several key systems in a retailer’s toolkit – especially including inventory intelligence.
RFID Comes of Age
Stats from Auburn University’s 2016 RFID Lab report show increasing RFID adoption by the top 100 U.S. apparel retailers.
Note that though only 4 percent of U.S. retailers reached full deployment by June 2016, the other 96 percent were all in some phase of adoption.
Additionally, retailers just starting to adopt RFID increased a staggering 32 percent from 2015 to 2016 according to the Auburn report. The feasibility assessment stage once stretched several months. But now that RFID is a proven technology, retailers spend very little time investigating whether the technology will work: “Most retailers seriously contemplating the use of RFID move quickly through this first phase.”
The accelerating rate of adoption “continues to be driven, in our opinion, by the requirements of being an omni-channel retailer,” the report stated. “Specifically, inventory accuracy is a requirement for omni-channel and retailers simply cannot efficiently achieve a high level of inventory accuracy without RFID.”
After nearly 20 years of false starts, “RFID tech finally appears to be on the precipice of widespread retail adoption,” according to Forbes5. “As the cost of the technology has dropped dramatically… retailers are starting to convert to RFID to access a single, real-time view of all their inventory, be it for in-store or online channels.”
In addition, the 4.6 billion tags used [in 2016] represent only about 10 percent of the entire apparel market, leaving much room for growth, according to research firm IDTechEx, as reported by RFID24-7.com6. “Some estimates put RFID saturation for apparel as low as 4% of all items, leaving even more room for expansion.”
RFID’s Significant Benefits
Retail’s Need for Speed
Retailers know the need for speed has never been greater in responding to today’s demanding consumers. And they’re taking action with RFID. In this “want it now,” multi-touchpoint shopping environment, retailers must match the high bar set by Amazon Prime – which can only be done with the foundational “table stakes” requirement of the high inventory visibility, accuracy and agility that RFID provides.
Item-level inventory knowledge is key to Amazon’s ability to deliver amazingly fast fulfillment to today’s “want it now” consumers. While most retailers don’t yet have the level of visibility required to fulfill quickly from the store at scale, “new advancements in inventory tracking, thanks to RFID, coupled with unified commerce systems, are making near 100% inventory visibility within reach. Retailers are investing heavily in the space, with 46% naming inventory visibility a top store priority for 2017,” reported RIS News7.
With greater and faster visibility and control over enterprise-wide inventory – or inventory intelligence you can turbo-power this tremendous asset into an engine of ROWC. And when you know, in real-time, exactly what you have and where it is, you can quickly and profitably fulfill orders while building customer confidence and loyalty — and compete head-on with Amazon.
Let’s consider how transforming stores into fulfillment centers affects the speed of order fulfillment. Both Macy’s and lululemon are reaping the fulfillment benefits of RFID technology by greatly enhancing their ability to quickly access inventory across all channels and locations. With accurate inventory data, these retailers are able to ensure timely and accurate fulfillment, including “Buy Online and Pick-Up In Store” (BOPIS) and Ship-from-Store (SfS), to help improve the customer experience.
Here are a few challenges faced in today’s retail environment and how progressive retailers are overcoming them:
1. Lack of Distributed Fulfillment. Without knowing your inventory across the enterprise, you can’t achieve accurate and flexible distributed fulfillment, such as BOPIS and SfS. Some retailers segregate inventory for e-commerce only, but this can require new real estate, including new fulfillment centers. In addition, your store-based inventory is exposed to walk-in customers only, resulting in inventory inefficiency that consumes working capital.
In general, companies with enhanced inventory accuracy from RFID enable a higher number of shoppers to find specific items they want, which can help increase sales by as much as 25%.
Today, Macy’s accesses store inventory for fulfillment to meet customer demand with item-level RFID – reducing $1 billion of store inventory2.
2. Unnecessary Expense. The free delivery option that consumers demand is expensive. This erodes the EBITA retailers enjoyed before “omni-channel” became the buzzword it is today. For every dollar a customer spends on an order, retailers are spending an extraordinary 18 cents in total order lifecycle cost, according to EKN Research9. RFID pulverizes this expense with inventory intelligence that decreases shipping costs while increasing online order picking success.
Reducing expenses with increased margins is one reason why Macy’s is “incredibly bullish on RFID,” stated Robert B. Harrison, Macy’s COO10. “The RFID benefits of inventory replenishment are known, but it has also proven itself as a game changer as omni-channel evolves. As a fashion-based department store, with 20% of merchandise in single size-color units at any given time, RFID offers a huge margin opportunity, when you can know exactly where that garment is at any time.”
lululemon Pays for RFID Deployment in Just One Season
Jonathan Aitken, former director of IT, store technology operations for lululemon, told Apparel Magazine11 that he estimates his company paid for its RFID deployment in just one season, and that the technology was a major factor in its great holiday sales in 2015 and 2016. The challenge of RFID may be convincing your CFO that an extra $8,000 to $20,000 per store is worth it, the article stated, “…but the return on investment is worth it.”
Furthermore, as of the January 2017, Apparel Magazine article, of the lululemon North American stores with streamlined omni-channel capabilities [primarily BOPIS and SfS], order cancellations “on a good week” were less than 1 percent. “Retailers that do omni-channel without RFID have cancellation rates between 20 and 30%,” Aitken said.
And while masses of retailers continue to close their doors, lululemon added 42 stores in just nine months, from 3Q 2016 to 2Q 2017, according to the company’s 2Q 2017 fiscal results statement12.
3. Bad data. Don’t make decisions based on bad data. Take it from Macy’s. According to Peter Longo10, “We would take inventory once a year, and inventory degradation occurs at a rate of about 2% to 3% per month. By the time you take your next inventory, your files are 35% to 40% inaccurate, and we got on this journey where if we were making decisions every week or every other week on what to do when the files have that kind of discrepancy. There are lots of analogies and metaphors like ‘who balances their checkbook once a year?’ or ‘who looks at their personal bank statement once a year?’ You do it regularly because it’s really important. You don’t want to make decisions on bad data.”
RFID provides crystal clear data for an accurate, real-time view of every RFID-tagged item across your enterprise.
4. Treating RFID as a Project. RFID is a foundational implementation, a transformational initiative and the basis or framework for many other important projects required to compete profitably today.
According to the Auburn 2016 RFID report, “In discussions with some retailers, RFID has been viewed as a project alongside other projects such as omni-channel enablement (such as BOPIS and SfS). As an example, one retailer decided to postpone its RFID project so they could focus on BOPIS. The irony, of course, is that a retailer must have high inventory accuracy to have a successful BOPIS program and the best way to achieve high inventory accuracy is with RFID. RFID should not be viewed as a ‘project’ rather, it should be viewed as foundational to enable many of the projects retailers must undertake to adequately satisfy today’s consumer.”
Take cover from commerce headwinds with RFID.
Razor-Sharp RFID Inventory Intelligence Allows Retailers to Achieve:
- Better on-shelf availability of merchandise.
- Improved stockroom-to-sales-floor replenishment of complex size/style/color assortments.
- Reduced out-of-stocks.
- Fewer markdowns.
- Positive cash flow from capital expenditures.
- Resulting sales lifts.
Return on Working Capital
Most retail executives can generate precise metrics for operating expenses, but often not for capital invested in inventory. That’s because a huge amount of any organization’s assets are in play at the merchant level. Merchant organizations responsible for managing inventory assets are balancing receipts, sales, damages, returns, markdowns, and supplier returns and rebates. Multi-channel and omni-channel initiatives have amplified these complex moving parts exponentially. Even when assets are managed well, all retailers would benefit from improving inventory visibility and thus ROWC.
Consider the overall significance of inventory assets: A $30 billion retailer turning inventory at 3X per year, for example, would have $6.5 billion of capital investment at cost. Using RFID, this retailer can positively impact its inventory investment. Even if top-line sales remain flat, operational improvements can increase inventory turns by fractions of a percent, and gross margins can improve through better merchandise availability and more sales at original markup or first markdown. When that happens, sales and margin dollars go straight to the bottom line.
RFID has been proven in several use cases to reduce inventory cycle-count time by up to 96 percent and increase a retailer’s confidence in SKU-level item availability. This can help boost sales by up to 20 percent, reported Michelle Covey, vice president of retail apparel and general merchandise at GS1 US, a member of GS1, the not-for-profit organization that develops and maintains global standards for business communications (such as the UPC).
In Covey’s article published June 29, 2017 in Manufacturing Business Technology13, she points to Macy’s as an RFID “power user” and “trail blazer” committed to tagging 100 percent of its merchandise by the end of 2017.
Referencing the Platt Retail Institute RFID report, “Macy’s has shown solid ROI,” Covey stated. “Inventory markdowns have decreased. Full-price sales increased 2.6%. The ability to fill orders of RFID-enabled merchandise was 6.1% more than for non-enabled merchandise.”
In addition, the report states item-level RFID helped Macy’s lower inventory variance by up to 4.5 percent and decrease display shortages from 30 percent to up to 6 percent which helps further drive working capital.
Macy’s return on capital improvements is reflective of the RFID ROI analysis by Kurt Salmon’s “RFID in Retail 2016” report14. According to the management consulting firm, six typical RFID use cases directly impact revenue increases and reductions in markdowns and labor costs. See graph below.
It’s proven fact that RFID can help improve ROWC. Consider again the Kurt Salmon RFID survey, in which 60 soft-line retailers and wholesalers with revenues of at least $500 million reported these RFID results:
• Improved inventory accuracy by up to 25.4 percent.
• Boosted profit margins by up to 60.7 percent.
• Improved customer satisfaction by up to 11 percent.
• Reduced out-of-stocks by up to 40.6 percent.
• Reduced shrink by up to 33.7 percent.
With item-level RFID, you too can help stimulate cash flow, increase ROWC and even potentially help meet looming debt obligations before they come due.
Retail Sector Presents Large Opportunity to Improve Working Capital
According to PwC’s 2016 Annual Working Capital Opportunity Sector Analysis15, it is likely that retail is one of four sectors presenting “the largest opportunity for bottom performers to improve working capital and release cash.”
Courtesy, PwC, 2016
Achieving Nirvana: Seamless Circular Commerce
To compete effectively in the digital world, you must have relentless confidence in your inventory accuracy. RFID can help deliver it.
Using RFID, your stores can provide substantial value by also serving as fulfillment centers for online shoppers. You can confidently promise that merchandise ordered will be where it should be, when it should be, and can be picked up in the store or shipped direct to the shopper. Customer satisfaction is maintained, which helps increase margins due to increased sell-through and fewer out-of-stocks.
You can also locate inventory down to single items at any store and sell them online at full price, a practice known as pick-to-the-last-unit (P2LU). At Macy’s approximately 20 percent of inventory is represented by these single unit SKUs and selling them at full retail versus markdown, or counting them as losses due to shrink, contributes significantly to the bottom line.
With RFID, you can make inventory transparent to your customers online. This helps you fulfill any order, whether BOPIS, SfS or distributed fulfillment, with confidence. Plus, when customers come to pick up orders, there’s a good chance they will add on to the original purchase. Macy’s states that the average order increases by up to 25 percent when customers pick up in the store16.
lululemon’s Shop App for iPhone and Android
lululemon, an “inventory genius,” according to RIS News17, not only enjoys 98% inventory accuracy with its full-scale RFID roll-out, but has launched store inventory look-up on its mobile app and websites. The tool provides shoppers with visibility “to see what inventory is in stores, as well as the ability to ship from stores. Shoppers can order online and if the product is not available in the e-commerce store, but is available in a brick-and-mortar location, a signal is sent to that store to pick, pack and ship the product to the customer,” reported RIS News. “To learn more about a product in a store, shoppers can open the lululemon app, which uses a phone’s camera to scan the barcode and pull up the product detail page from the e-commerce site. It then uses backend integrations to RFID to do a real-time inventory check across all stores, based on the shopper’s location.”
Ready to Calm the Storm by Leveraging Your Inventory and Capital?
RFID found its niche and item-level retail is the playing field. There you’ll find giant potential to leverage your inventory and capital. Will you be a winning player?
Leveraging RFID for accurate, real-time visibility is absolutely paramount to achieving precise inventory management, long-term customer satisfaction and financial health especially with so many touchpoints along today’s shopping journey.
Inventory Intelligence solutions — like TrueVUE by Tyco Retail Solutions — has successfully helped retailers, like Macy’s and lululemon, achieve up to 99% inventory accuracy in today’s competitive marketplace. Armed with RFID-enabled hardware and robust software platform, you gain a virtual sightline into enterprise-wide inventory to help reduce costly distortion by establishing solid accuracy by item and location while maximizing customer satisfaction and driving sales.
“Retailers need to evolve to a true omni-channel offering (from multi-channel, where many are still stuck) where the consumer can truly cross channels seamlessly,” reported Supply Chain Digital18. “The role of the store is not dead but retailers need to do more to press the advantage of bricks-and-mortar over pure-plays such as Amazon, using technologies like RFID to drive inventory visibility, thereby improving the shopping experience.”
Are you among the retailers willing to create true Inventory Intelligence, seamless circular commerce and a healthier ROWC?
About The O Alliance
The O Alliance is a new consulting model that leverages a network of transformational practitioners with expertise in all of the critical areas that will unlock value and empower a retailer digital/technology, operations, change management, marketing and talent. Designed to align a retailer’s organizational practices with today’s digitally savvy consumer, The O Alliance’s holistic approach delivers customer focused strategy and solution driven execution that creates a Seamless Circular Commerce shopping ecosystem. For more information, please visit theoalliance.com or contact us at 352-233-4454, or at firstname.lastname@example.org.
About Tyco Retail Solutions
Tyco Retail Solutions, now a part of Johnson Controls, is a leading provider of retail Loss Prevention, Inventory and Traffic solutions. We deliver real-time visibility and predictive analytics to help maximize business outcomes in today’s digitally driven shopping world. Our more than 1.5 million data collection devices in the retail marketplace capture 40 billion shopper visits and track and protect billions of items each year. Our retail portfolio features the premier Sensormatic®, ShopperTrak® and TrueVUETM brands, as well as a full suite of Johnson Controls building technology and security solutions. For more information, please visit TycoRetailSolutions.com or follow us on LinkedIn, Twitter, and our YouTube channel.