RFID in the Race to Integrated Retailing

3/5/2013
This year, several billion retail items world-wide will be RFID tagged. In fact, 19 of the top 30 U.S. retailers, along with many more around the globe, are pursuing RFID programs that provide visibility for individual items ranging from apparel and footwear to electronics. Much has been said of the immediate sales and profit gains that can be realized by using RFID for better inventory management. Yet, there is an even bigger motivation behind these initiatives: the race to the integrated shopping experience. The surprise is that physical retailers have the advantage over companies such as Amazon in this race.

An integrated shopping experience is one that delivers the rich sensory and personal experience of a physical store while meeting the expectations of the online experience. Amazon, the leading online retailer, has set a high bar for excellence in execution with nearly perfect fulfillment. What's more, they continue to set the standard for the information-rich shopping experience by coupling customer history with product information, reviews and recommendations.

To beat Amazon in execution, retailers must tap into their core advantage — carefully selected inventory in stores that are near the customer — and use it to reliably and quickly fulfill demand both in stores and online. But this is only possible if the retailers know exactly what they have in their stores. Similarly, to provide a compelling information-rich shopping experience that is even better than Amazon's, physical retailers can use data about in-store shopping activity to augment the online experience and provide a continuity between them. Only success on both fronts will allow retailers to retain their customers when they are shopping from somewhere other than in the store. Having physical stores is the key to success, but those stores must capture and use information in new ways. This is why RFID is emerging as a key enabler for store operators who are integrating execution excellence and information richness into their overall experience.

It is widely known that Macy's and JCP are committed to using RFID technology at the item level in apparel and other product categories. Yet Macy's and JCP could not be more different in what they emphasize about these efforts as they retool to compete as integrated retailers. Macy's public comments focus on the need for operational precision in their stores that is on par with what one would expect from an e-commerce fulfillment center. For example, having a 90 percent chance of finding an item in a store that a customer orders online, and then maybe getting it to them a week later might have been considered good a decade ago, but today Amazon has made that laughable.

Nearly 100 percent reliability for same- or next-day delivery is the coming standard. However, it is well established that store inventory accuracy typically hovers between 60 percent and 80 percent. This leaves retailers with three choices: set very high buffer stock limits to achieve high reliability at the cost of sales; set low limits to increase apparent availability, but at the cost of reliability; or use RFID to have both high reliability and high availability without adding inventory. Macy's has chosen the latter. When it comes to same-day delivery across the country, it will not be easy for Amazon to compete. This concept is captured by Peter Sachse, Macy's chief of stores who said, "We've spent the last 153 years building warehouses, we just called them stores." And they have more than 800 of them already.

Macy's RFID program involves working with suppliers to attach RFID tags to a wide variety of items, mainly in apparel but also in jewelry and footwear, making it easy to maintain highly accurate store inventory data. Macy's shoppers will find immediate benefits with better availability of the items they want both in store and online and the execution associated with the Macy's brand.

In contrast, JCP's CEO Ron Johnson has said, "I'll take a physical retailer in a heartbeat." Johnson's point is that in many product categories such as apparel, there will be no substitute for physical stores. But, he also knows that the physical shopping experience must evolve. The key to the richness of Amazon's shopping experience is that Amazon knows which item you are interested in because you clicked on it.

An integrated retailing analog to a click is a shopper picking up an item or carrying it into a fitting room. The retailer's response could be a text message with a personalized offer, a video that shows product information and reviews, or a display showing (accurate!) available size and color options in the store or for delivery. All of this information could easily follow the shopper home to continue the engagement. For different reasons than in the Macy's story above, JCP shoppers might also be more likely to visit JCP online instead of browsing with a competitor. In this case, it is because of the continuity they will get from the in-store experience. Without item-level data captured in the store, it is not possible to fully realize the integrated shopping experience.

The common denominator between Macy's and JCP is that both of these leaders have embraced item-level RFID as the technology platform upon which to build their integrated retail experience. And both Macy's and JCP are first using RFID as a tool for better inventory management, which immediately improves the in-store and online shopping experience. Whether your focus today is in-store experience or omnichannel fulfillment, RFID can help while paving the way to a fully integrated shopping experience.

Larry Arnstein is vice president of business development for Impinj, an RFID solutions provider, and holds leadership roles in the VICS Item Level RFID Initiative, an inter-industry group of leading retailers, suppliers and solution providers.

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