When it comes to RFID in retail, “There is much more happening than would be apparent to a casual observer, and it has been this way for almost two years,” says Marshall Kay, founder of Wilmette, Ill.-based consulting practice RFID Sherpas and former director of the North American RFID program for Kurt Salmon Associates.

“Item-level RFID is drawing increasing interest from luxury retailers and big-box discounters alike. This reflects a growing recognition of the many ways that value is generated once an item is tagged.”

Kay recently spoke with STORES contributor David P. Schulz about the state of retail RFID.

StORES: What has changed in the world of retail RFID over the past 12 months?
Kay: I can think of several big changes. First, the number of retail CEOs who have taken a direct interest in RFID has grown. These CEOs are taking the time to educate themselves and ask the right questions. They tour their test stores, meet directly with RFID experts and receive briefings from their people on the progress of internal projects.

Second, we now have disposable RFID tags being used in the United States on items that retail for under $5. We have shattered the myth that an item needs to cost at least $15 in order to warrant attaching a disposable tag to it.

Third, there are reports that auditors are now willing to waive the requirement of laborious physical inventory counts if retailers instead track their inventory throughout the year with RFID. Not only can retailers save the money they pay outside parties to perform these counts, they can also save the overtime wages they pay their own employees to shadow these people.

StORES: Many people still associate RFID primarily with Wal-Mart. Is that an accurate association?
Kay: Wal-Mart’s RFID program has to-date focused on carton-level visibility and efficiencies; this is very different from the item-level visibility and efficiencies being achieved today by several retailers. Since each item has a serialized tag, these retailers now have much better visibility into the merchandise they receive and its location within the store, allowing them to keep their sales floors properly stocked and use store labor more effectively. Item-level RFID is even being used to expedite the checkout process.

Executives at companies like Brooks Brothers and American Eagle Outfitters should pay attention to the progress of retailers like Bloomingdale’s, Dillard’s and Nine West; Office Depot, OfficeMax and Best Buy can similarly learn a lot by tracking the success that Staples is having with item-level RFID in Canada.

StORES: Some skeptics have characterized RFID as “a solution in search of a problem.” Is that a fair statement?
Kay: It’s quite unfair. The fact that a technology can be helpful in multiple ways should not be held against it. The criticism is even less understandable when you consider that one of the problems that RFID quickly solves — inaccuracy of retail perpetual inventory data — is a chronic problem that has plagued the retail industry for decades.

Warning lights should go off in your head if you ever hear someone trot out the “solution in search of a problem” canard: There is a good chance the person has either a weak grasp of retail RFID or a motive for belittling the technology.

StORES: Why do you believe it is imperative for department stores to collaborate on RFID?
Kay: It’s really quite simple. Flash forward five years to a period where the majority of specialty clothing retailers are using RFID on their garments [and] put yourself in the shoes of the average consumer. Those stores are more likely to have your size in stock, are more likely to have amenities like “smart” fitting rooms with interactive video screens that make your visit more interesting and productive and they will be using RFID to expedite checkout.

If department stores cannot offer you a similar shopping experience, you will spend less and less time in their stores. Specialty retailers will also be reaping the rewards of inventory efficiency and visibility across their supply chains, further strengthening their balance sheets and making them even more dangerous competitors.

Branded vendors like Liz Claiborne, whose clothes are sold primarily in department stores, should be very concerned about the serious implications for their principal channel to market. Sadly, many of these branded vendors [are] essentially waiting until the major department stores require them to begin attending educational events and collaborative industry forums.

StORES: Source-tagging seems to be relevant to both retailers and branded vendors. What is happening on that front?
Kay: Source-tagging — which often amounts to little more than asking your overseas factory to apply a smarter label or ticket than the one they are accustomed to attaching — has been happening now for several years. One retailer routinely has its suppliers tag more than 100 million garments a year. While this doesn’t yet constitute 100 percent of that retailer’s merchandise, this a large-scale tagging program that has been up and running for quite some time.

Others with much smaller unit volumes are already source-tagging 100 percent of their merchandise. It’s worth pointing out, too, that factories that choose to use RFID to check the contents of their outbound shipments are, not surprisingly, exhibiting higher levels of order accuracy.

Source-tagging is not simply about ensuring that tags are applied where the cost of labor is at its lowest; it is also about raising the level of upstream quality control and catching mistakes before product hits the distribution center or store.

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