Using Item-level RFID to Reduce Out-of-Stocks and Increase Sales

In challenging economic environments, retailers need to find ways to reduce costs while maintaining shelf availability and customer satisfaction. Often they will reduce store inventory, resulting in a higher risk of out-of-stocks. However, with shoppers remaining cautious, retailers may have only one chance to make the sale. In fact, a recent study estimates that merchants are losing about 4 percent of revenue due to out-of-stock items.

 

The flipside is that holding too much inventory to ensure shelf availability can result in overstocks and costly markdowns, which present their own challenges to retailers trying to reduce working capital requirements and maintain gross margins. Traditionally, retailers have relied on perpetual inventory (PI) to determine when to reorder, but studies show that PI is accurate only 35 percent to 65 percent of the time

 

In response, specialty apparel retailers and department stores are increasingly implementing RFID-based systems that provide greater insight into their operations, from the point of manufacture through point of sale. These solutions give retailers real-time visibility into the location and quantity of their inventory in the supply chain and in-store, enabling them to optimize inventory and working capital, meet customer demand and maximize sales and profits.

 

While RFID tagging at the pallet and case levels has proven beneficial for improving supply chain efficiency, it hasn’t fully optimized retailers’ in-store needs, since they can’t always know the availability of a specific size, color or style of an apparel item on the shelf or elsewhere in the store. As a result, manufacturers and retailers are moving more toward item-level RFID.

 

Apparel retailers stand to benefit most by RFID-enabling merchandise for which inventory availability is most crucial, including fast fashion and core-item apparel. For example, seasonal merchandise, such as bathing suits or winter overcoats, offers special challenges, because it’s vital to have just the right amount of inventory during a specific time period. Too few coats in late fall result in lost sales, too many left in March and the retailer faces steep discounts. Likewise, selling “core” items like sports jackets often results in ancillary sales of shirts, ties, slacks and belts. So if a customer can’t find a 42-Long in the style and color he’s looking for during his visit, that retailer may lose not only the sale of the jacket, but also several other related items.

 

RFID tags are available in a variety of form factors, including hard tags and labels, and can be implemented at the point of manufacture or in-store. Source tagging is generally more cost-effective due to labor rates, and it improves customer service by freeing store associates who would otherwise be pulled from tasks such as replenishing shelves and assisting customers. In addition, applying the tag earlier in the process enables retailers to know exactly where specific items are throughout the supply chain. For example, a retailer can see exactly when a specific item left the manufacturing facility, arrived and left the distribution center, and reached the receiving dock of a store. RFID also enables visibility inside the store, including when the item was moved from the back of the store to the front of the store, its availability on shelf and when it was sold and then left the store.

 

Integrating RFID with inventory management and point of sale systems (POS) enables retailers to increase perpetual inventory accuracy, better manage inventory, make more accurate reorder decisions and reduce out-of-stocks, leading to increased sales. Integrating any new data source into existing enterprise systems requires careful planning. The best way to approach this is to leverage standards-based technologies and interfaces, such as UPOS to integrate RFID with POS systems.

 

Retailers need to be able to get started on global implementations with solutions that generate benefits immediately, without costly investments in infrastructure, staff time and user training. They now have options available to help them get started quickly and cost-effectively, some vendors even offer out-of-the-box handheld visibility solutions for fast installation to enhance multiple store operations.

 

In addition, retailers should look to suppliers to help them understand their business processes, develop a phased adoption plan, build an ROI model and Key Performance Indicators (KPIs), and deploy a solution that enables them to prove the ROI of RFID in their own operations. Once retailers begin to experience the benefits, they have laid the groundwork for a broader, global rollout to support geographic expansion, additional product categories, source tagging and integration with store systems.

 

Specialty apparel and department stores are increasingly adopting RFID-based solutions for item-level tracking because they recognize the value that they deliver and are already seeing results. Particularly in tightened economies, ensuring that the desired piece of apparel is on the shelf when the consumer wants to buy it is crucial. Item-level RFID-based solutions available today can significantly improve apparel retailers’ ability to reduce out-of-stocks, reduce working capital requirements and increase sales.

Steve Sell is vice president of marketing for Checkpoint Systems.