Let’s flip the page back to June 2010, when VICS held a meeting in San Antonio and the decision was made to form the VICS Item Level RFID Initiative. This brought together retailers, suppliers, solution providers, educators and associations in what participants consider the most broad based collaborative initiative the retail industry had seen since the adoption of the bar code.
There are several retailers and brands engaged in the use of item level RFID in apparel replenishment that are sharing the benefits they have experienced. A list of the primary challenges facing these companies, with some applicability to suppliers, clearly illustrates the opportunity for item level RFID in today’s marketplace:
Reducing out-of-stocks — This is more critical than ever, not only to apparel, but in all product groups. Keeping store inventory to an absolute minimum is critical to success. The balance of meeting consumer expectations and being as efficient as possible is no longer an option.
Increasing sales and increasing store and supply chain productivity — This will certainly make a contribution to the retailer’s and the supplier’s bottom line. Pilots have indicated that having the right mix of products that consumers want to buy will maximize sales, maintain adequate shelf availability and help keep prices competitive.
Lowering the cost of inventory — Avoiding out-of-stocks and markdowns is very important, but the limited selling seasons of apparel and the frequent reconfiguration of products on the sales floor makes this challenge very difficult without item level RFID.
Improvement of speed to market — With many products, trends and consumer preferences emerge rapidly, especially in the fashion business. Products have to get from design to the store faster than ever, sell and be replenished as quickly as possible, while consumer interest is at its highest-and before the next selling season begins.
Reducing labor — Retailers routinely slash prices to move merchandise, which results in lower gross margins. Improving store level inventory accuracy and the amount of SKUs that can be read with item level RFID vs. the bar code, reduces labor for taking inventory and searching for products. As source tagging is broadly implemented, retail and manufacturer labor productivity will improve. The supplier will also have fewer order discrepancies to resolve along with order status.
Generating data to maximize programs — The market place is rapidly changing to direct marketing programs with a goal of driving store traffic. Retailers need accurate, real-time information to determine what promotions are working and which ones aren’t. Suppliers need this information to determine which marketing campaigns they will continue to fund. Retailer promotional programs represent about 25% of sales, so the impact can be substantial.
Preserving brand integrity — Counterfeiting is a significant problem, estimated to be at $1 trillion worldwide. It erodes brands and margins, and causes confusion in the market place. Consumers don’t know if they are buying legitimate branded products. Item level RFID, with GS1US EPC enabled serialization, is the one approach that can comprehensively address this challenge.
Consumer satisfaction — Harvard Business School research has consistently found that when a product is out of stock, the interested customer is highly unlikely to return to that outlet, but will shop for the product in another store. Research by the University of Arkansas found that the retailers participating item level RFID pilots each saw in increase in sales as a result of having product in stock (about 6%).
Reducing shrink — The overall average for retail shrink is 1.45% of sales. The average in apparel is 1.87%, computer and electronics is 0.97%, cosmetics and perfume are 1.79%, jewelry is 1.06%, shoes is 0.85% and vehicle parts is 1.77%. There is a major opportunity to reduce shrink, including customer and employee theft, with item level RFID.
This will seem like nirvana to many, and to others it will be too expensive to embrace due to the return hurdles companies must meet. However, the companies participating in the University of Arkansas item level RFID research started deploying in the initial stages of the economic downturn, reviewed then verified the results, continued to build on a business case and then took comprehensive proposals to their boards of directors.
Macy’s made an announcement on September 28, 2011 that by the 3Q12, item level RFID will be implemented in approximately 850 Macy’s stores and 50 Bloomingdale’s stores. This is a tremendous endorsement for item level RFID and the industry initiative.
It is an exhilarating experience to be on this train to progress and game changing technology. The support of so many of the VILRI committee members is enabling the initiative to make such significant progress in a very short period of time. Accenture produced a VILRI research paper titled “RFID Nears a Tipping Point,” which suggests that adoption of RFID is reaching a “tipping point,” with 80 percent of surveyed retailers having initiated pilots using RFID to track item sales in their stores. The report, which includes input from Accenture and a survey of 58 suppliers and 56 retailers in North America, confirmed that item-level adoption of RFID is gaining traction.
VILRI is one of the most collaborative initiatives in retail ever, if not “the” most collaborative. The academic community is very actively involved, with several universities providing educational support and research. The Solution Provider Sponsorship Program includes more than 20 of the industry’s largest technology providers, which are supplying a plethora of information and supporting the initiative with advice and guidance.
There is no doubt that 2012 will be a very busy year for everyone involved in VILRI. The initiative’s leaders are certain that as the number of implementations increase, more companies will be more willing to share, as there will be less concern about competitive advantage or the loss of intellectual property. One of the key reasons for this is the importance industry standards, which eliminate the need for companies to meet different trading partner requirements. The industry has a lot of experience using agreed upon processes, including the bar code and EDI transaction sets, and a new series of standards and guidelines from VICS and GS1US are expected to be equally widely accepted.
The case for action on item level RFID has been made and now it’s about adoption and implementation that is in the process of taking place now.