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RFID Boosts Retail Sales

Although Wal-Mart is the best-known retailer to embrace radio frequency identification, test projects at a variety of retailers show...

Although Wal-Mart is the best-known retailer to embrace radio frequency identification, test projects at a variety of retailers show how smart tags can make a difference in retail operations, said Mark Thomas, RFID marketing manager at Avery Dennison, a label and RFID tag maker.
RFID can help with myriad challenges and opportunities, including out-of-stocks, inaccurate inventory records, shrinkage, fitting room recovery and customer service. In particular, out-of-stocks cost retailers $120 billion globally, and shrinkage costs $60 billion worldwide, Thomas said, quoting figures from service firm TechEx.

This story first appeared in the July 11, 2007 issue of WWD.  Subscribe Today.

Potentially, RFID can help increase store sales 5 percent to 18 percent simply by making it possible to have the right products on the shelf, he said. RFID can help keep inventories lean because stock counts are more accurate, and RFID can be used to find misplaced items or boxes on the shelves or in overcrowded stock rooms, he said.

The prices of RFID tags have already come down considerably, and a typical tag costs about 15 cents when bought in quantity. The breakeven point is about $20 an item, Thomas said. In other words, it doesn’t make sense to use an RFID tag on an item that costs less than $20. “You cannot be putting an RFID tag, for example, on a $2 pair of socks,” he said.

Concerns about privacy have been a barrier to adoption, but EPC Global and other trade groups are working to explain the benefits of the tags to the consumer as well as the retailer, he said.

Levi Strauss, Marks & Spencer, Best Buy, Metro and Tesco are examples of retailers that have RFID tests in place.

Liverpool, a 61-store retailer in Mexico, in collaboration with Levi Strauss, created a test last year that included reusable tags on totes as well as some item-level tags. Liverpool has two distribution centers and nine reusable hubs. Reading points for tags included receiving, pallet distribution, shipping and store docks.

The test found that the tags increased inventory accuracy from 80 percent to 99 percent. It also sped up the process, which used to take one day and now takes two hours. Out-of-stocks dropped to 1 percent from 5 percent. Most important, sales grew faster than the department store average.

At Marks & Spencer, the U.K. retailer started with a test that involved tagging 20,000 men’s suits in 2004. A second test in 2005 was expanded to six stores and 400,000 suits. The trials were so successful that last year, the company rolled out RFID to 78 stores and key product areas with complex sizing, including women’s suits. Additional departments will start using RFID later this year and next year.

Benefits include significant increases in sales, more accurate inventory, reduced markdowns, better availability, fewer special orders and increased customer satisfaction, Thomas said. All Marks & Spencer stores receive merchandise with RFID tags, even though only 42 stores use the tags to drive replenishment, and yet it is still cost effective, he said.

To date, the company has used more than 75 million RFID tags, making it the largest RFID apparel implementation in the world, Thomas said.

Thomas also described a futuristic use of RFID in the dressing room. Smart tags could trigger suggestions for matching accessories on a touch screen, and the same screen could be used to summon a sales associate to bring additional sizes and colors. The tags would also help deter theft, he said.