For those soft lines categories where a significant improvement to inventory accuracy can increase revenue or profitability, the benefits of using radio frequency identification, or RFID, have long been clear. For those categories where inventory accuracy doesn’t have as big an impact, however, RFID has been harder to justify.
For the purposes of this paper, we discuss three specific segments of soft lines consumer products, each of which manages inventory very differently and, as such, benefits from the inventory accuracy that RFID enables in different ways:
- BASIC REPLENISHMENT These items are typically managed by auto-replenishment and vendor-managed inventory solutions, so the benefits are largely centered around improved accuracy to avoid stock-outs.
- FASHION These items often have high item/size complexity with much shorter seasons, each of which often has markdown implications. As such, the inventory accuracy benefits are found mostly in the ability to drive high availability, thereby capturing the full selling price early in the season.
- ACCESSORIES These items often lack the SKU size and complexity of the previous two categories, but their average retail price tends to be high, which means the benefits of increased inventory accuracy can be significant as more brands/retailers run tighter inventories and use them across multiple channels.
Increasingly, RFID use cases offer benefits that go beyond inventory tracking. The challenge for soft lines retailers is to identify—depending on which category they fall into—exactly what those benefits are.
Basic Replenishment Items
In-store or back-to-front replenishment: By far the most common use case of RFID in retail is in-store inventory accuracy, or the ability to quickly and easily identify when a particular SKU is missing from the store floor and should be replenished from backroom stock. Retailers of basics, whose styles don’t change dramatically from season to season but whose turnover is high, realize immediate in-store benefits from this use case, with sales rising an average of 4% to 7%. Replenishment items that have a large number of SKUs (e.g., jeans with many sizes and colors) typically see the largest sales increases.
Store out-of-stocks: Using RFID, conducting a full inventory count in a retail store typically takes minutes vs. the hours or even days it takes if done manually. Moreover, by feeding those RFID-enabled store tallies to purchase order management systems every month, basics retailers can reduce if not eliminate entirely their store out-of-stocks.
Loss prevention: While it’s not a core benefit, inherent in the inventory tracking capability of RFID is reduced shrinkage, as increased visibility makes loss prevention much easier.
Omnichannel fulfillment support: Customers increasingly expect their experiences with brands to be consistent, regardless of where, when, why or how they interact with them. A key aspect of providing such a channel-agnostic—or omni-channel—experience is fulfillment, and omnichannel fulfillment depends on accurate store inventory. Customers demand an endless aisle, or the ability to see everything that’s available for purchase, and RFID is the most reliable way of producing such visibility. By enabling a near-real- time inventory count across channels with RFID, basics retailers can use that information to decide the best location from which to source product orders, such as ship-from-store. And for larger retailers who offer buy online/pick up from store, such inventory accuracy is a must-have. A customer who comes to the store to pick up a purchased item only to find that it is not available at the promised time will think twice about shopping there again.
Meanwhile, if department stores continue to push their wholesale suppliers to maintain their own inventory, basics brands can extend the benefits of RFID-enabled fulfillment to their store channels as well.
Enhanced checkout experience: The use of handheld devices by soft lines retail store associates to process customer transactions is already starting to spread, and RFID can significantly enhance that experience. However, for other RFID-driven efficiencies, such as self-checkout, it’s still early days. Customers of lower-cost soft lines basics will be far more amenable to self-checkout than those shopping for fashion items, especially those on the luxury end of the spectrum, who will be expecting the personalized, more discreet experience that an iPad-carrying sales associate can provide.
In-store or back-to-front replenishment: For fashion items, whose styles change with every season but whose product count and turnover are much lower than that of basics, store replenishment is far easier. As such, the benefits of RFID-enabled back-to-front replenishment for fashion items, while still notable due to higher in-store visibility—and the related decrease in markdowns—aren’t as dramatic, with sales increases running closer to the 0.5% to 1% range. This is especially true for retailers who hold the vast majority of their fashion inventory on the sales floor instead of in a back room.
Department stores, with their huge backroom stocks of product from multiple brands and high turnover rates, have long been advocates of RFID for in-store replenishment. After Saks implemented an RFID-based solution for its 15,000-square-foot flagship shoe department, for example, its display of footwear SKUs went from just 65% of those available in-store to nearly 100% in just a few months. But fashion manufacturers have taken longer to warm to the idea of tagging the products they sell in department stores, arguing that the lifecycles are too short and the sales boost too low to justify their making the investment. For those with their own shops in department stores, however, the investment may be easier to justify, as the benefits would mimic those of using RFID for replenishment in their own retail stores, just on a smaller scale.
Store out-of-stocks: The seasonal style turnover of fashion items makes using RFID to conduct full inventory counts to reduce out-of-stocks worthwhile despite the lower SKU count. By reducing or eliminating out-of-stocks, fashion retailers can sell more of their items at full price while simultaneously reducing the number of markdowns they are forced to take later in the season.
Loss prevention: High-end fashion items benefit most from this added RFID use case.
Omnichannel fulfillment support: RFID-enabled inventory tracking across channels allows fashion retailers to discern the most cost-efficient location from which to source product orders, such as ship-from-store, buy online/pick up from store, etc. Much as with basics, going forward they can extend RFID-enabled fulfillment to their department store channels as well, including to their stores-within-stores.
Interactive retail environments: Customers are overwhelmed with choice. As macro digital, mobile, and traditional brick-and-mortar store traffic trends make clear, retailers need to evolve their store experiences to be much more interactive. And while interactive retailing environments already leverage a variety of technologies, among them Bluetooth tagging, video analytics and mobile POS, certain RFID-enabled technologies have proven to be especially impactful.
For example, RFID tags allow store associates to unobtrusively learn which fashion items a customer has taken into the dressing room so that they can offer additional, complementary items, perhaps even those that together form a complete outfit. Discount retailer Kohl’s began piloting such a smart fitting room strategy at the start of this year. Meanwhile, the inventory visibility that RFID enables gives sales associates more time to attend to the needs of individual customers because they are spending less time in the back searching for product.
Going forward, fashion brands will also come to rely on RFID-powered interactive digital marketing tools that display additional, customized options and information for the items customers are already considering. The best-known fashion brand making use of such technology, of course, is Burberry, which has embedded RFID into certain apparel items in its flagship London store so that when a customer tries them on, the mirror they’re looking at can double as a screen showing how the item was worn by catwalk models. Indeed, as a high-end fashion brand, Burberry is using RFID to power technology in its stores in a way that will resonate best with its customers. Uniqlo, on the other hand, which sells low-priced fast-fashion items, features so-called magic mirrors in its retail locations that display the items being tried on in different colors or styles.
Finally, by equipping stores-within-stores or even their own dedicated sections within department stores with interactive RFID-enabled displays, fashion brands can replicate the 1:1 retailing experience of their own retail stores, instantly distinguishing themselves from their competitors.
In-store or back-to-front replenishment: Accessories need the least amount of replenishment of all soft lines categories, but benefit the most from having a full range of color and style options on display on retail shelves.
Loss prevention: The added benefit of loss prevention is particularly notable with accessories for the simple reason that they are easier to steal and, at least when it comes to luxury items, are often more desirable in the eyes of those performing the theft.
Omnichannel fulfillment: RFID-enabled tracking for omnichannel fulfillment is extremely beneficial for accessories, particularly jewelry items, since typically just one or two of each style are kept in-store.
Interactive retail environments: From a product mix perspective, accessories are especially well positioned to benefit from RFID-powered interactive digital displays, as such technology lends itself to outfit planning, of which accessorizing is a key component.
Kurt Salmon sees the adoption of RFID by soft lines retailers being led by replenishment items, followed by the fashion and accessories categories. The most innovative and potentially impactful use of RFID, however, will be undertaken by those retailers focused on providing both an omnichannel and interactive in-store retail experience. For those soft lines retailers and brands looking to understand how RFID can benefit them, we recommend piloting it, since with a technology like RFID, there is simply no better way to assess its impact.
Besides, regardless of which soft lines category gets to full adoption first and in what way, RFID will ultimately penetrate the entire soft lines consumer goods industry because it’s a proven technology that drives absolute benefits—many of which go beyond inventory accuracy
21 May 2014