Will RFID Revolutionize Retail (at last)?

Levi Strauss & Co. is increasing its investment in RFID technology to revolutionize its supply chain with nearly 100% inventory visibility [7].

In today’s omnichannel environment, retailers must have fast, flexible, and accurate retail inventory management systems to convert and retain customers [7,15]. Customers have unprecedented ease and access to an abundance of choices regarding where to shop and what to buy, and traditional brick & mortar and e-commerce channels are deeply connected through an increase in buy-online and ship-from-store or pick-up-in-store programs [1]. These options are driving competition in retail supply chains, which must constantly evolve to be faster and more precise [2]. With alternatives just a click away, the stakes are higher and inventory availability is crucial to winning customer transactions.  Levi’s cites inaccurate inventories as its, and the wider industry’s, “Achilles Heel,” with internal research revealing that ‘out-of-stock’ and ‘couldn’t find my item’ were the top barriers to purchase” [9].  If the right products are not available on the shelf the immediate sale is lost, and future customer journeys and overall brand perceptions are jeopardized [9].

To address this concern, Levi’s has partnered with Intel’s Responsive Retail Platform, to leverage its RFID tags, ceiling sensors, and  cloud-based analytics software in a network of its stores  with the goal of digitizing its supply chain through “real-time, all-the-time inventory insights” [8,10,9]. Radio frequency identification technology (RFID), promises the fast tracking of anything – tools, boxes, cars, etc. – and holds the promise of a massively more efficient supply chain through near 100% inventory visibility [4]. It automates inventory tracking at an item level “from the warehouse to the store floor — replacing the process of employees scanning products manually” [1]. While early adopters like Wal-Mart famously struggled to make the technology pay off, the investment required today is dramatically lower with the cost of RFID tags falling from $1 in 2003 to ~10 cents today, and several major retailers, including Macy’s, Bloomingdales, and Target are expanding its use [4,1].

RFID presents an opportunity for tangible operations gains throughout the full supply chain that will quickly flow through to substantial financial gains via increased sales volume and profitability [1]. When key performance management inputs (in Levi’s case real time stock information at the unit/store level) are digitally connected directly to parameters in the supply chain planning systems, the speed and precision of the supply chain can be optimized through both short-term changes, such as automatic activation of replenishment orders, as well as longer-term pipeline planning and product development optimizations [2]. The optimizations made possible by faster, more accurate digital inventory tracking will dramatically increase sales volume through reduced out-of-stocks and the elimination of discounting on overstocked merchandise [13]. The use of RFID further drives incremental sales volume through enhanced customer service by increasing the time available for staff to interact directly with customers [9]. RFID tracking will also dramatically reduce inventory costs by allowing Levi’s to carry much lower levels of inventory and safety stock [2]. Digitalization is causing an increase in customer expectations for further individualization and customization of products. RFID inventory tracking will allow Levi’s to rapidly incorporate granular customer feedback into its planning processes to evolve its SKU portfolio and forecasts to better meet their demands [2].

In the short-term, Levi’s is primarily focused on its own in-store use case, and is looking to validate the proof-of-concept test from its flagship store in a broader network of stores. However, to realize the full magnitude of operational gains, Levi’s should quickly scale its RFID implementation upward and outwards [7]. While this will require significant operations changes and additional employee training across the organization, Levi’s goal should be to have every single item tagged within 2 years. Macy’s, which stocks the Levi’s brand, is leading the way in rapid implementation of RFID. Bill Connell, SVP of transportation, store operations and process improvement at Macy’s revealed that Macy’s is already halfway to its goal of RFID tagging 100% of its products across its full fleet of fulfillment centers and stores by the end of 2018, and has already seen “a big impact” on sales and profitability [1].  In the medium-term, once every item is tagged, Levi’s must leverage the granular inventory information in two ways. First, it must ensure that it is being leveraged as an input at every stage of its internal supply chain. Second, in the longer term, it should work with its external partners to validate ways to move this technology further up the supply chain and across all participants.

Looking ahead, the question remains: as more and more retailers move beyond the pilot phase with this technology, how can retailers, brand owners, and other supply chain participants share this granular data to better serve customers – and what competitive risks does that pose?

 

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Works Cited:

  1. Thau, Barbara. “Is The ‘RFID Retail Revolution’ Finally Here? A Macy’s Case Study.” May 15, 2017. https://www.forbes.com/sites/barbarathau/2017/05/15/is-the-rfid-retail-revolution-finally-here-a-macys-case-study/#72ca35c03294. Accessed November 2017.
  2. Alicke, Knut, Rexhausen, Daniel, and Seyfert, Andreas. “Mckinsey&Company: Supply Chain 4.0 in consumer goods.” April 2017. https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/supply-chain-4-0-in-consumer-goods. Accessed November 2017.
  3. GS1 US, Auburn University RFID Lab. “2016 State of RFID Adoption Among U.S. Apparel Retailers.” 2016. https://www.gs1us.org/gs1-us-library/command/core_download/entryid/1529, Accessed November 2017.
  4. Malone, Matthew. “Did Wal-Mart love RFID to death?” February 14, 2012. http://www.zdnet.com/article/did-wal-mart-love-rfid-to-death/. Accessed November 2017.
  5. Canada Office of Consumer Affairs. “Radio-Frequency Identification (RFID) in the Retail Marketplace.” January 26, 2009. https://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02320.html. Accessed November 2017.
  6. Webster, Richard, Tager, Suzanne, and Vishwanath, Vijay. “Deconstructing the Digital Agenda in Consumer Products.” March 8, 2017. http://www.bain.com/publications/articles/deconstructing-the-digital-agenda-in-consumer-products.aspx. Accessed November 2017.
  7. RFID World. “Retail Talks in RFID – Levi, LuluLemon and Target.” October 26, 2017. https://www.rfidworld.ca/levi-strauss-co-teams-up-with-intel-to-test-rfid-in-stores/2429. Accessed November 2017.
  8. LS&CO. Unzipped Team. “LS&CO. & Intel: rfid pilot at levi’s plaza.” September 25, 2015. http://www.levistrauss.com/unzipped-blog/2015/09/lsco-intel-rfid-pilot-at-levis-plaza/. Accessed November 2017.
  9. Sillitoe, Ben. “NRF 2017: Intel’s responsive retail platform a good fit for Levi’s.” January 16, 2017, http://www.essentialretail.com/in-store-ops/article/587d435958f41-nrf-2017-intels-responsive-retail-platform-a-good-fit-for-levis. Accessed November 2017.
  10. Intel Newsroom. “Intel Unveils New Intel Responsive Retail “January 16, 2017. https://newsroom.intel.com/news/intel-unveils-new-intel-responsive-retail-platform-plans-100-million-investment-nrf-2017/. Accessed November 2017.
  11. Velasco, Carl. “Intel’s Responsive Retail Platform Will Change The Way You Shop.” January 17, 2017. http://www.techtimes.com/articles/192967/20170117/intels-responsive-retail-platform-will-change-the-way-you-shop.htm. Accessed November 2017.
  12. Kim, Eugene. “Intel is helping Levi’s save a ton of money by tracking every movement in a retail store.” Business Insider. November 3, 2015. http://www.businessinsider.com/intel-helps-levis-track-store-data-2015-11. Accessed November 2017.
  13. Intel Corporation. “Increasing Profitability for Brick-and-Mortar Retailers: Intel Retail Sensor Platform Delivers Near 100% Inventory Accuracy.” https://www-ssl.intel.com/content/www/us/en/retail/solutions/documents/retail-sensor-platform-paper.html. Accessed November 2017.
  14. McKevitt, “Macy’s RFID effort boosts sales, fulfillment.” April 20, 2017. https://www.supplychaindive.com/news/RFID-Macys-success-inventory-fulfillment-markdown-Platt/440827/. Accessed November 2017.
  15. Big Commerce, “The Complete Omni-Channel Retail Report: What Brands Need to Know About Modern Consumer Shopping Habits in 2017,” 2017. https://www.bigcommerce.com/blog/omni-channel-retail/. Accessed November 2017.

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2 thoughts on “Will RFID Revolutionize Retail (at last)?

  1. Great Article!
    Absolutely agree, I think RFID can completely change the efficiency of the supply chain process and dramatically reduce inventory levels and help companies manage the SKU complexity at a significantly lower cost. What I also, found interesting however, that the potential this has to influence the in store sales experiences as well. For instance, this technology will help sales associates better assist customers and enable fitting room merchandising and promotional opportunities given SKU level level information from RFID. [1]

    The challenge, however, will be managing the cost required to implement these changes. Given the near term pressure on the retail industry, I am curious to see how will companies make these investments which maintaining profits.

    [1] https://stores.org/2017/09/11/rfid-ready-revolutionize-retail-industry/

  2. This is an interesting article and definitely demonstrates RFID technology’s ability to greatly influence and improve the retail supply chain. However, I wonder to what extent it can truly ‘revolutionize’ retail, especially given the two biggest barriers to customer purchases that you cited – “out-of-stock’ and ‘couldn’t find my item’. Although accurate inventory tracking and management can improve these two issues, isn’t the out of stock problem more widely attributed to incorrect prediction of customer demand? The retail industry is extremely difficult given it requires companies to anticipate future trends and identify months in advance the designs and styles that match future consumer preferences. Retailers still need better technology and processes to more accurately predict these trends, and I’m not sure RFID technology will be revolutionary enough to solve this fundamental problem. You mentioned that Macy’s will implement the technology for 100% of its products by 2018 and is already seeing big improvements to sales and profitability. Once many retailers follow suit, will this just become standard practice wherein the industry attains a new (albeit better) equilibrium that is fraught with other inventory issues?

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