Radio-frequency identification (RFID) technology has become a must-do for retailers, with potential for massive cost savings and new revenue opportunities.
By Brad Roller and Jon Wood
What if your worn-out shoes sent you a coupon to buy the next pair? Or if the mirror in a retail fitting room showed you other colors available for the item you’re trying on? RFID technology can enable these kinds of powerful experiences at surprisingly low costs.
Although RFID has been on the immediate horizon for the last decade, recent developments are driving the technology forward and forcing the hand of manufacturers and retailers. Retailers crave sources of data to optimize their business, and RFID creates a whole new set of data about in-store environments, product movement, and customer behavior. As a result, companies that aren’t already piloting RFID are lagging in the market. Even early adopters can develop new capabilities to unlock more of RFID’s potential.
RFID technology overview
RFID uses electromagnetic fields to identify and track tags that are attached to objects as hangtags or stickers, or embedded within them. RFID systems are composed of tags and a reader to read them. Each RFID tag has a processor and an antenna. Tags can be active and use a battery, or passive and use power from the reader. Readers can be handheld or stationary. They vary in size and strength based on their purpose.
Retail RFID use cases
1. Store level inventory process and data improvements
- Improvement in overall accuracy. RFID can transform in-store inventory accuracy to upwards of 98%, approaching that of warehouses. The typical retail inventory process is very manual, time-consuming, and only done at predetermined intervals. Historical data shows that for every ~3% improvement in in-store inventory accuracy, you can expect a ~1% increase in sales. Typical retailers operate at ~70% accuracy by year-end (2–3% reduction in accuracy per month), leaving significant opportunity for positive impact on sales.
- Receiving . Because RFID antennas and wands do not require line of sight to scan RFID tags, shipments to the store can be instantly and accurately received into inventory. This is a huge win compared to time-sucking individual carton and item scanning, or even worse, blind receipts.
- Finding items. Handheld RFID wands typically have the ability to track items in the store using a system akin to metal detectors, beeping faster as the wand approaches a given item. More complex systems of fixed antennas throughout a store can also be set up to pinpoint a specific tag’s location.
- Cycle count time . Since line of sight is not necessary and RFID antennas can work at a distance, a cycle count can be done significantly faster and more accurately than any traditional processes.
- Removal of formal inventory counts . RFID readers are accurate enough that RFID-based inventory counts may be allowed by auditors after showing a history of accuracy.
- Auto reorders at safety stock levels . Because overall accuracy is improved, rules for replenishment orders can be set and forgotten, with no more need for manual spot checking or ensuring replenishments are needed.
2. Store operations
- Spread breadth of available products while reducing depth . With a product like men’s jeans, one style may have ten different widths, ten different lengths, and ten different colors. It can be virtually impossible to keep any significant amount of inventory for all variations displayed. Inevitably, many will stock out on the floor and others will have no movement. This may change on a day-to-day basis with some trends, but not enough to make impactful floor inventory decisions. With RFID in place, employees can be notified when a specific combination is no longer available on the floor (or has low inventory), where to find it in the backroom, and exactly how many to pull, on a nearly instantaneous and continuous basis.
- BOPIS and ship from store. Both buy-online-pick-up-in-store and ship from store are customer expectations approaching a must-have capability for retailers. If a business can’t trust its inventory accuracy, it cannot consistently deliver these capabilities. In simplest terms, without accurate, real-time inventory counts, a retailer could be selling an item for pickup that isn’t actually available in the store.
3. In-store traffic patterns
- Customer and product flow . By aggregating and plotting RFID item movement throughout a store, retailers can begin to draw conclusions about how people and products navigate the physical confines of the space. Benefits may include monetizing high-traffic endcaps, tracking in-store cart or product abandonment, removing physical pinch points, and understanding how certain product categories or items correlate to different paths in the store at different times of day, days of the week, etc.
- Associate flow . Whether for training purposes or data collection, RFID tags can be used to track employee movement throughout a store.
- Equipment flow . Whether its forklifts at a home improvement retailer or a restocking cart at a clothing store, valuable data can be gleaned from seeing how equipment flows through a store’s physical space.
4. Fitting room
- Magic mirror . Imagine a fitting room that uses touch screen monitors in place of mirrors. By geo-locating specific RFID tags, this fitting room tracks the item that is being tried on, shows other available colors and what those might look like on you, shows available complementary clothes, and could provide relevant product information such as the fabric technology.
- Tracking pickup/try-on vs. purchased . As items are tried on and not purchased, that information can be tracked for either internal analysis or to remarket to the individual who didn’t purchase later.
5. Checkout process
- RFID can speed up and potentially eliminate the traditional checkout process altogether. Items could pass on a conveyor through scanners that read on-the-fly rather than individual bar code scans. Items in a bag or cart could be tagged to a pre-loaded customer loyalty account to aid in creating a frictionless checkout experience where a customer simply walks through an RFID gate on their way out of the store.
6. Theft detection and prevention
- RFID movement tracking can be paired with sales data and video data to determine if items left the store in larger quantities than were purchased at that specific time. With this data aggregated, retailers can see systematically which exact items were stolen, which door they exited through, at what exact time, and have HD video of the specific perpetrator. This data can be actioned real-time through alerts to associates, used for monitoring of general trends, or as evidence to work with authorities creating criminal cases.
7. Post-purchase enablement
- Another use case is linking product usage to marketing to create future sales. For instance, if a retailer’s app could track activities or read from other apps, it could enable unique capabilities. For one specific example, if running shoes were RFID enabled (the item itself, not the packaging), your phone or watch could recognize when you are wearing those shoes on a run. When the shoes approach expected end-of-life (based on miles run, user weight, user speeds) the retailer could trigger a coupon to replace that shoe with the newest iteration.
- Physical or financial incompatibility . RFID doesn’t make sense for all products. Low-value items may not justify additional cost, and some products—such as very dense or metal items—are incompatible with RFID due to radio penetration problems.
- System integrations . RFID and RFID software can exist as a stand-alone solution for some in-store problems. However, at some point decisions will need to be made as to the overall direction of RFID within the company, and whether it makes sense to integrate fully into inventory, allocation, master data, point of sale, digital asset management, and other systems.
- RFID tag applications. RFID tags (specifically external tags vs. embedded) can be applied anywhere in the supply chain — at the supplier, distribution center, or retail store — each with different costs, control, accuracy, and benefits. The right strategy will depend on business goals.
- Edge vs. cloud . An integrated RFID solution at all retail stores could lead to an astronomical increase in data and calls to central systems and thus, cost. Cost-benefit analysis should be done to decide whether companies must bring in new data processing capabilities as their RFID solution advances, such as edge networks to control these costs.
- Shielding . Storefront operations need to be radio shielded from back-of-store operations for RFID to function properly, so systems don’t accidentally mix inventory. The most effective way is with the addition of physical shielding, or even better, physical shielding installed during store construction. Many RFID software providers are now seeing success with virtual shielding, using algorithms to identify front-of-store vs. back-of-store location. As these algorithms advance, it could become completely unnecessary to have physical shielding, making potential adoption even quicker.
- Privacy. If RFID is embedded into products itself, complications with user privacy could emerge and must be considered during the product design phase on a country-by-country basis. However, these concerns are limited by the fact that unlike GPS, RFID can’t be tracked or pinpointed over large distances.
- Supply chain ripple. RFID can quickly expose larger supply chain issues related to supplier relationships, store allocation accuracy, distribution channel on time in full, supply chain visibility, store inventory practices, shrinkage, returns/repairs, or overall agility. To see additional company-wide benefits after initial RFID adoption, going down supply chain improvement paths may be necessary.
As RFID costs continue to drop and supporting technologies improve, RFID will become more prominent in the US and globally. RFID in the retail environment can improve the customer experience, elevate employee trust in systems, and increase revenue. RFID can also bring in large swaths of customer and product data that deliver long-term advantages over competitors. RFID is finally here and will only continue to grow.