Making the Business Case for RFID in Retail
RFID is all the rage in the retail industry, but it’s not just for the major players. Retailers of all sizes are increasingly excited by this revolutionary technology that promises to create value and develop efficiency across almost every segment of their business. Excitement does not always lead to adoption however; due to the broad nature of RFID’s benefits, it can be hard to measure its impact on the bottom line.
RFID increases efficiency, visibility, and opens up the world of omni-channel retail. When making the final decision to adopt a new system, companies need accurate return on investment (ROI) figures and clear key performance indicators (KPIs). Thankfully, this data is starting to emerge, making an unmistakable business case for RFID in retail:
Out-of-stock means out of business, but RFID enables regular, accurate stock-taking that ensure retailers know what is on their shelves and therefore when to reorder. Without RFID, average stock accuracy is just 63%, but high-profile retailers like Macy’s, John Lewis and Wal-Mart have demonstrated stock accuracies of 95-99%, simply by implementing RFID.
Without stock accuracy, many retailers feel the need to over-replenish stock in order to account for potential shortages. This means more stock, needing more space – space that doesn’t need to be paid for or space that can be reassigned to create value.
After adopting RFID, American Apparel reduced their in-store stock holding by over 20%. Reclaimed space could allow for better storeroom organization, extension of the store floor, or create new facilities for customers and staff. Once you can define the amount of extra space RFID adoption provides it’s a small step to assigning measurable value to its use.
Some hesitate to associate RFID adoption directly with sales increases. The facts however, show that retailers experience increases of up to 20% after introducing the technology. Importantly, they also see these increases disappear when RFID is removed. River Island reported a 10% sales increase in pilot stores. When RFID was removed, sales in those stores dropped by the same percentage.
A survey by Retail Knowledge calculated that US retailers are losing more than $60 billion a year to shrinkage. The vast majority of that is due to shoplifting and theft by employees in the store, warehouse or in transit. By tracking every item all the time, RFID completely redefines this problem. American Apparel, for example, reduced shrinkage by a massive 75% after introducing the technology.
As a technology focused on efficiency and visibility; RFID impacts the bottom line by increasing retailer’s margins. Kurt Salmon’s 2016 RFID study found that retail profit margins were boosted from 8.9% to 14.3%, on average, due to lower operating costs, fewer errors, fewer markdowns and general streamlining. The same study also found a 12% ROI from the reduced time and labor costs associated with implementing RFID.
It seems that making the business case for RFID in retail has never been easier.