Try This Frequency

Radio frequency is helping retailers protect inventories

• By Lee Pernice
• Feb 01, 2011

In general, retail is the fastest-paced, most frenetic business environment around. Retailers have to deal with constantly moving customers, large numbers of employees and extended business hours. On top of that, they have a great deal of merchandise moving from distribution centers to stores, onto the store floor and ultimately out the door with the customer. Keeping track of all of these moving parts isn’t easy.

Knowing what merchandise is where is essential for retailers today. Each year, they lose more than $30 billion to retail theft, according to the National Retail Security Survey conducted by the University of Florida and sponsored by ADT. That number includes shoplifting, employee theft, vendor fraud and administrative error.

To know what you are losing, you have to know what you have. That’s the tricky part. With so much merchandise moving in so many directions, it is easy to lose track. For example, paperwork may show that 50 pairs of women’s athletic shoes are in Store A when actually the shoes were never shipped to the store due to an administrative or delivery error. The retailer thinks Store A has the shoes, but they are really sitting in the corner of the distribution center. How much of that $30 billion loss per year is due to error and how much can be attributed to actual theft is important to the retailer. Ultimately, lost shoes mean lost dollars.

Today retailers have a number of technological tools that can help them keep track of merchandise. One of the latest is radio frequency identification (RFID). The technology has been around since World War II, and it gained a lot of attention in 2003 when large retailers started requiring suppliers to tag shipments with RFID for better tracking of products and merchandise. RFID tags take the idea of a barcode even further. Unlike barcode technology, RFID does not need line-of-sight to read the information on the tag because it is transmitted using radio frequency.

The fact that RFID does not need line-of-sight gives it a tremendous advantage, especially when we are talking about tracking merchandise. Traditionally, retailers have tracked products using manual inventory techniques. That means using labor to handcount merchandise. It is slow and oftentimes inaccurate.

RFID allows the retailer to take inventory much more efficiently and accurately using tag readers that can read every tag on a shelf or in a storage bin and accurately record their location and other important information. In one highly publicized RFID pilot, inventory accuracy was increased to above 99 percent and the number of employee hours was 25 times less than with conventional hand inventory methods.

Item-level RFID tagging has proven to be especially useful in the shoe and apparel retail sectors. It is estimated that more than 15 billion pairs of shoes and 10 billion fashion apparel items are manufactured globally each year. That is a lot of merchandise, and it is easy to understand how some of it can get lost or misplaced as it is shipped around the world and then sent from distribution centers to stores. Apparel and shoe merchandise is friendlier to RFID than many other retail sectors. Metal and liquid tend to block or distort the RF signal, so food items and hardware merchandise are not as well suited to the current RFID technology. Ways around this interference are being worked on, but for now the soft-goods retailers are in a good position to embrace the use of RFID for tracking goods.

There are several proven ways that RFID can help apparel and shoe retailers, including better inventory accuracy, more effective use of labor, reduced out-ofstocks, reduced losses from counterfeiting, loss prevention when used with complementary technologies and a quick return on investment.

Better inventory accuracy. We already talked about how RFID can help retailers know what they have and where they have it. Part of the reason for increased accuracy is because RFID is often integrated into the network. Stock counts are entered automatically into the inventory system. This is done by the readers and does not rely on employee input, which can often lead to human error and mistakes.

Also, the visibility that RFID offers allows the system to see merchandise that is there but cannot be seen. Inventory is counted even if it is hidden under a stack of boxes or pushed behind an old display case.

The read accuracy for RFID has improved greatly over the last few years.

More effective use of labor. It seems pretty simple: if you can cut the hours it takes to hand-count inventory the old fashioned way, you can bring down the number of employee hours substantially. But, the effect on use of labor also works in subtle ways. If employees know where everything is, they do not have to spend time looking for it. Employees do not have to spend time searching storage or backrooms for items that don’t exist. That really can translate into more efficiency in the store. It also can mean that instead of doing inventory once or twice a year, the retailer can do inventory more often and get a better ongoing picture of what merchandise is in the store at all times. That information on an ongoing basis is invaluable and allows the retailer to make more-informed decisions about stocking and reordering. A byproduct of all of this is better customer service and increased sales.

Reduces Out-of-Stocks. We have all experienced out-of-stocks when we go to the store looking for a certain item only to find that it is not on the shelf. It happens especially with sale items. You go to put the product in your cart and there is a gaping, empty space on the shelf. You can tell by the shelf tags that the product was there, but the other bargain hunters have gotten there ahead of you. Out-of-stock also includes items in the right color and right size.

You need that shirt in a medium and there are five smalls on the rack. The store could be totally out of the product, or store employees just might not realize the mediums are all gone and so they have not gotten around to restocking.

This OOS problem is a big one for retailers. Some studies estimate that retailers lose $95 billion to out-of- stocks. That’s more than they lose to retail theft.

Research shows that retailers not only lose the opportunity to sell those items at that moment, but also that, after a few experiences with OOS, many customers will switch to another store. So, OOS becomes a customer-service issue with long-term implications. RFID has been shown to be effective in cutting down on out-of-stocks. In some pilot studies it has reduced them by as much as 60 to 80 percent. Again, it all comes from the visibility that RFID gives to the retailer. By knowing quickly and efficiently where the merchandise is, store management can get much better about knowing how much of a product is being sold, how much is on the shelf and keeping those shelves stocked with merchandise.

Reduces losses from counterfeiting. The market for counterfeit fashion goods is estimated to be nearing $200 billion. Those same estimates put the loss to fashion designers from counterfeiting at more than $10 billion globally. Counterfeiting is big business and hurts not only the designers but the consumers, as well. High-end handbags, shoes and jeans are some of the favorite items to be counterfeited. RFID tagging helps retailers track products throughout the supply chain -- from the point of manufacture to the cash register. Tagging with RFID electronic product codes should provide retailers with information on the product origin and ultimately its authenticity. Retailers should be able to quickly tell a knockoff from the real thing.

Helps with loss prevention when used with complementary technologies. RFID can help detect retail theft just by giving retailers the visibility into their supply chain to know what products are where.

Once a retailer has an accurate idea of existing merchandise, it becomes much easier to tell what items have walked out the door without passing through the cash register. An accurate inventory combined with accurate sales data let the retailer know what has been stolen by retail criminals. Before RFID, it wasn’t as easy to tell with certainty if an item was not delivered by the supplier, got lost in the distribution center or storeroom, or was actually stolen by a shoplifter or employee.

So, RFID is very good at detecting theft, but it also can help with deterrence. The loss prevention value from RFID is in the timeliness of the information it provides and the ability to pinpoint missing items, socialize that information with the store team and ultimately raise the level of risk associated with internal theft. When it is combined with other technologies, it further takes on the task of deterring theft and catching thieves. Combined with cameras, recorded monitoring and/or electronic article surveillance, it can alert the retailer to items missing from inventory. The cameras and recorded video can be used to view the moment the items left the distribution center, store backroom or store floor. RFID combined with the video can thus be a powerful forensic tool.

RFID and EAS also can work together as an effective loss-prevention team. Matching the EAS alarms with RFID information can help retailers determine what walked out the door and at what time. RFID tracks the merchandise through the supply chain and into the store; EAS tags act as alarms letting retailers, employees and surrounding customers know when someone has taken tagged merchandise out the door without paying. In its simplest form, the complementary nature of EAS and RFID is “robust event detection for external theft, timely and reliable information for internal theft.”

Provides a quick ROI. The cost savings alone that comes from the reduced number of employee hours needed to do inventory goes a long way to providing ROI for RFID. When you add in the savings from out-of-stock reduction, the path to ROI becomes even shorter. But it does not stop there. Improved customer service and increased operating efficiency also affect the bottom line pretty quickly, and many industry experts say that full ROI in six to 12 months is reasonable.

Retailers have also been fairly successful so far in addressing the privacy concerns surrounding RFID tags. Most stores post signs explaining the tags and automatically deactivate or remove the tags before the customer leaves the stores.

There have been discussions about mandating these procedures, but most retailers have implemented disclosure and educational programs on their own.

The last couple of years have hit retailers pretty hard. The economic downturn and recession have left a lot of big-name retailers looking for ways to do business differently and to be more efficient in the future. RFID is a technology that has shown it can do just that. Despite cutbacks on expenditures, many retailers are looking at technologies like RFID as a way to survive and prosper. The technology itself has evolved and gotten better. RFID tag read rates have increase dramatically, and middleware and software have become increasingly more sophisticated and robust. And it is only going to get better.

In the future we can expect RFID to work more seamlessly in more environments without interference or reduction in performance. Once that happens, we will see even more sectors of retail looking toward the benefits RFID can bring to the table. We have moved from the pilot stage where retailers were studying the technology for its benefits.

Now we are seeing some retailers beginning wider implementation. The adoption of RFID in retail has been slower than many people predicted, but most industry experts acknowledge its potential at making retail operations run more smoothly and efficiently.

For more information, visit http://www.adtbusiness.com/retail.

This article originally appeared in the February 2011 issue of Security Today.