Radio Frequency Identification (RFID) tags are back. You may recall from ten years ago that Walmart announced they would require all suppliers to apply electronic RFID tags to all of their products. But the initiative for the entire supplier base fizzled because of cost. News about the electronic tags faded from the spotlight.
The situation is different in 2014. Not only have costs for RFID tags have been reduced, but today’s competitive omnichannel environment requires that retailers have accurate inventory information about exactly what is available in each store.
Consumers who consult their smart phone while in a store expect to find the item in the store that the web site says is in the store. Retailers who want to support online orders by either shipping from the store or by providing pick up in the store have to know precise inventory information at the store level.
The primary advantage that has emerged for RFID tags is speed and accuracy of in-store inventory.
- Speed – RFID tags on individual products support scanning of up to 15,000 items in an hour compared to about 300 items per hour with UPC bar codes. Complete inventory counts can be done for an entire store several times a month instead of the traditional practice of counting inventory once per year.
- Accuracy – Better inventory accuracy increases sales by having the right product in the correct place on the selling floor or available for shipment.
A second advantage is that loss prevention is enhanced by the ability to track individual items as they move through the retailer’s distribution system. Stores lose millions of dollars a year due to theft, both internal and external. For example, American Apparel estimates that it experiences up to 60 percent of their inventory shrinkage from internal theft and process issues.
A third advantage of RFID technology is that it enables retailers to closely monitor planagram compliance so that store displays are continuously marketing products as intended. For some products, such as shoes, this is especially important. If a shoe style is not displayed, the consumer won’t buy it because they don’t know it is available.
A fourth advantage is that the tags enable new ways of interacting with customers. Burberry’s is testing a smart mirror that automatically makes suggestions to the customer for accessories based on the RFID tag in the garment being worn in front of the mirror.
What are RFID tags and How Do They Work?
The RFID tag on individual items in retail is a tiny electronic chip and antenna. The particular kind of RFID tag being used is an Ultra High Frequency (UHF) Gen 2 V1.
The tags are about the size of two grains of rice. RFID tags are small enough to be embedded into the UPC bar code label or they may contained in a separate label altogether.
Current requirements are for the chip to contain the same information as a UPC bar code (i.e. the supplier’s GS1 Prefix and Item Reference Number) and also a serialized number that uniquely identifies a particular item called a Serialized Global Trade item Number (SGTIN). These three numbers are collectively called the Electronic Product Code (EPC) serialized number.
The tags do not have a battery. An RFID reader can pick up the information in the tag through the reflection of radio waves emitted from the reader.
Unlike a printed UPC bar code label, RFID tags can be scanned from a greater distance, scanned much faster, and do not require line of sight to be read. The tags can even be read through cardboard cartons and through racks of clothing.
Cost has been reduced. According an Accenture study of 116 retailers and their suppliers, an RFID tag costs about 10 cents and the labor to attach it costs about 20 cents. TrueCount sells RFID tags for between seven and 12 cents each depending on the quantity ordered.
An Accenture survey revealed 48 percent of retailers have plans in place to deploy RFID technology. Just over 75% of retailers who have implemented RFID plan to expand it into additional product categories. 80% of suppliers who use RFID technology are doing so because their customers require it.
Currently adoption is highest for the categories of apparel and footwear. ChainLink Research reported that last year over one billion apparel items were RFID tagged.
- American Apparel is rolling out RFID to all stores.
- Fred Meyer is currently surveying apparel suppliers to determine their RFID tagging capabilities.
- J.C. Penney said in 2013 it would tag all merchandise with RFID tags, but then backed off and currently only requires tags on footwear, bras, fashion jewelry and denim.
- Macy’s is using RFID tags in the shoe department in every one of its 850 stores. Additionally, all “size-intensive” replenishment items are being tagged, which represents about 30% of revenue. By the end of this summer, Macy’s plans to have half of all replenishment vendors sending merchandise with RFID tags affixed.
- Saks Fifth Avenue and Lord & Taylor, both of which are owned by Hudson’s Bay Company, are using RFID tags on footwear to ensure that the correct shoes are always exhibited according to the planagram. The displays are audited every day for compliance with the planned presentation. After two years of experience with pilot projects, the tag requirement is being rolled out for most merchandise categories through the first quarter of 2015.
- Walmart is using RFID tags on apparel items.
What This Means to Your Small Business
If you sell apparel or footwear, you may already be tagging your products. If not, you can probably expect larger retail customers to require it in the near future.
Retailers will continue to add more product categories for which they require RFID tags as benefits accrue for apparel and footwear. Rollout priorities will probably be initially driven by products with many sku’s for sizes and colors, followed by products with high turnover and products with higher loss rates such as jewelry.
There is a good chance that further RFID cost reductions and continuing omnichannel pressure for accurate in-store inventory will eventually drive retailers to require RFID tags on almost all products.
In the past retailers checked new suppliers and audited many cartons of existing suppliers to verify that carton contents matched the associated EDI Advance Ship Notice (ASN). Now retailers using RFID can quickly verify every single carton’s contents at the receiving dock without opening the cartons. Suppliers will have to ensure packing of cartons is accurate 100 percent of the time and always matches the EDI advance ship notice document. Of course this is the requirement even now, but in the future packing mistakes will very rarely, if ever, be missed by the retailer.