Omni-channel retailing exposes retailers to a host of opportunities to lose track of merchandise. What mitigates that risk better than RFID?
Originally published on RetailSolutionsOnline
By Matt Pillar, editor-in-chief, Integrated Solutions For Retailers
Omni-channel returns — which are happening by the millions this post-holiday season — are the cause of just one gray area in the quest for inventory accuracy and shrink reduction. We sat down with Ned McCauley, director of retail strategic accounts at Tyco Retail Solutions, to discuss how RFID might save the day.
ISR: How does tagging merchandise help retailers thwart not just theft but also operational loss (miscounted inventory, misplaced inventory, etc.)?
McCauley: There is a common misconception that security tags only assist retailers in their efforts to reduce shoplifting, but today’s tagging technology also allows retailers to gain better insight into operational loss and to increase supply chain efficiencies.
Many times operational loss occurs at the POS due to human error. For example, a sales associate might ring in one blue shirt and then multiply it by three to account for the green and red shirt the customer is also purchasing, which look very similar. While the price to the customer is the same for all these shirts, this situation causes inventory inaccuracy, because the system now shows that the store is down three blue shirts and triggers replenishment accordingly. This scenario plays out across many categories every day and results in over-stock and under-stock positions across the enterprise.
This common problem is one example of why retailers should consider adopting RFID solutions, which can identify each piece of merchandise uniquely (much like a signature or fingerprint) using EPC (electronic product code) tags. In an RFID-enabled environment, operator errors will decrease, inventory accuracy will improve, and the checkout process will become more efficient. These benefits can also extend to receiving and returns by streamlining processes and reducing room for mistakes.
ISR: How does RFID-enabled inventory play into retailers’ cross-channel or omni-channel efforts? How does it help retailers manage the movement of inventory across channels?
McCauley: In an omni-channel world, retailers sell merchandise from a database rather than a physical store. RFID-enabled inventory improves accuracy to nearly 100 percent and also helps identify the location of merchandise. These capabilities are the foundation that allows retailers to leverage their inventory pool across all channels and "pick" from the spot that is most efficient.
The moment of truth comes when a customer buys online and wants to pick up merchandise in a local store. In a culture ruled by social media, a customer in this scenario could become a risk for not only a singular bad experience if things go wrong, but also a potentially negative perception of the brand as a whole. Conversely, if all promises are met and the experience is positive, this customer is now an online brand advocate, which is always good for sales.
"RFID-enabled inventory improves accuracy to nearly 100 percent."
ISR: What's the sales/profit margin impact of better inventory control, in the context of helping retailers keep merchandise in a sellable position?
McCauley: There is a direct correlation between inventory distortion levels and sales. In our experience, for every 3 to 5 points of inventory distortion (caused by theft, transfers, operational errors, etc.) retailers lose about 1 point in sales. When you consider that over the course of one year many merchandise categories distort more than 35 percent, the opportunity for improvement, and therefore sales uplift, is huge. This is particularly true in categories with complex SKUs like denim or intimates, where size, style, and color matter the most.
Margin improvement happens two ways in an RFIDenabled environment. First, merchandise "turns" at an accelerated rate because the assortment mix matches the planning and allocation models more tightly. In other words, you have what customers need more frequently, so they buy more. Secondly, and an important distinction, is how margin improves in non-replenishable categories, such as fashion or seasonal. This type of merchandise has a very short lifespan, so the opportunity to sell at full retail prices comes down to how well retailers can execute on the planogram. If merchandise is available at the right time to the right customer, through any channel, then margins are high. If not, markdowns will naturally occur, and margins will suffer. In the world of fast fashion, two weeks can make or break the bottom-line. This is why investment in RFID solutions has accelerated quickly in this niche.
ISR: What's the impact of a degradation of presentation stock in a non-RFID-enabled environment? What's the end game in consumer access to merchandise?
McCauley: The impact of a degradation of presentation stock is that retailers experience a high degree of out-of-stock items, resulting in lost margin and lost sales. Customer dissatisfaction with that experience leads to brand erosion. Finally, the gap between the system of record and reality that results from presentation stock degradation results in the incalculable cost of inefficient processes.
In the end, RFID solutions are the key enabler of accurate inventories, which tie together omni-channel execution and the customer experience. Disruptive technologies, like mobility and social media, only raise the bar for retailers. Those that are able to deliver and capitalize on new customer expectations will be the ones to succeed in the future of retail.