Ready (Finally) for Item-Level Deployment

To describe retailers’ return on investment for item-level RFID projects as “impressive” may be the understatement of the year.

The Bloomingdale’s store in Manhattan’s SoHo district is achieving inventory accuracy of 95 percent, a lift in sales and margins and improvements in inventory shrink rates. At Dillard’s, a 17 percent improvement in inventory accuracy has been reported, along with time savings of 96 percent when it comes to performing cycle counts. And, with 100 percent of its merchandise tagged, American Apparel is achieving 99 percent inventory accuracy and a 14 percent sales increase.

While other retail companies are keeping their ROI victories close to the vest, widespread reports on the results of pilots and rollouts across the industry suggest that item-level RFID has finally emerged as one of the technologies for companies fixed on honing their competitive edge for the next decade.

Several industry experts are reporting that J.C. Penney has already executed item-level RFID implementation across select product categories in more than 30 stores, and though they decline to comment, there’s talk of extending the rollout chain-wide by mid 2011. It’s widely known that Walmart began RFID tagging of jeans, socks, t-shirts and underwear earlier this year and expects to apply the tags to other products in 2011.

Though no one at Gap will confirm it on the record, rumors are swirling that Banana Republic will extend its RFID pilot to more than 100 stores before the end of the year with more expected to follow in 2011. And there’s plenty of speculation about the role item-level RFID may play at other Gap divisions, too. Industry sources whisper that additional initiatives are in play at a handful of other companies, including Inditex (which operates Zara), H&M, J.Crew and Saks Fifth Avenue.

“Skeptics have tried for years to dismiss RFID projects as too expensive or too complex, but RFID is now finally getting its day in the sun,” says Marshall Kay, founder of RFID Sherpas. “Proceeding with RFID should already be a no-brainer for specialty apparel retailers. They have the ability to accelerate more quickly than department stores because they have much more control over their suppliers.”

Educating retailers on benefits
Kay, who has spent nearly a decade toiling in the RFID trenches, points out that the enhanced inventory accuracy and visibility created by RFID “translates into proactive replenishment of selling floors and stock rooms, and has the potential to yield meaningful improvement in gross margin and unit volumes.”

Zander Livingston, CEO of supply chain solution provider Truecount, previously served as director of RFID for American Apparel. He describes the possibilities the technology presents as “profound” and is buoyed by the recent flurry of activity among premier retail companies.

When he undertook item-level RFID tagging at American Apparel, “I felt like I was alone,” Livingston recalls. “I couldn’t understand how something that was so powerful and so beneficial was not being embraced by more companies.”

Education will be “a big factor in moving forward,” he says. “If retailers are willing to share what they’re learning in their pilots, where they’re seeing benefits — even where they may have misused the technology — the next guy will be able to learn from that and avoid mistakes. It’s all about driving the technology ahead.”

Livingston insists that, while most RFID benefits are tangible — greater inventory accuracy, high visibility and vastly improved consistency — some are not measureable. “With RFID in place, managers are more confident on the inventory,” he says. At AA, “we witnessed a positive transition in the mood of store associates and noteworthy improvements in customer service.”

Both Kay and Livingston characterize the recent successes at Macy’s Bloomingdale’s division, J.C. Penney and Walmart as a tipping point for industry acceptance of item-level RFID and a bold indicator of what’s to come.

“With the industry’s two national department store chains driving forward on this front, it’s fair to say that item-level RFID technology is ‘crossing the chasm,’” says Kay, referencing the title of a seminal technology marketing book by Geoffrey Moore.