The Supply Side: Retailers return to RFID for omnichannel capabilities

by Kim Souza ([email protected]) 665 views 

Radio frequency identification (RFID) technology is not new, but the tracking system has become essential for inventory accuracy among retailers concentrated on selling products in different places, aka omnichannel sales.

Mike Graen is chair of the Retail Supply Chain Initiative (RSCI), a strategic partnership initiative of the Supply Chain Management Research Center at the University of Arkansas. He said RFID has been used upstream for several years in retail for situations like tracking fresh food. Graen said having the correct inventory counts has been shown to boost sales between 4% and 8%, and that’s a win for retailers and suppliers. Still, it wasn’t until the pandemic that more retailers saw a sense of urgency to move toward omnichannel retail for apparel and other categories with many individual SKUs or items.

Retailers have invested heavily in RFID technology since 2019 to increase store inventory accuracy and enhance omnichannel capabilities for buying online and pickup in-store (BOPIS).

Bill Hardgrave, president of the University of Memphis, is one of the country’s leading RFID researchers. He was formerly a professor at the University of Arkansas who began the RFID Lab there. The lab has since been moved to Auburn University. Hardgrave said Walmart started using RFID technology between 2003 and 2005 to tag items at distribution centers. He said the cost at that time to implement the technology in thousands of stores on millions of items was high, and there was no urgency to do so.

Graen said the cost of tags has declined since 2005 from about 25 cents a tag to approximately 5 cents per individual traceable tag. He said the labels are also much smaller and are, in many cases, next to the universal product code (UPC) as a unique serial number or license plate that works much like a car’s vehicle identification number (VIN).

Graen, who contracts with retailers and suppliers on RFID projects, recently worked with Walmart on an RFID tagging initiative. Between 2005 and 2011, when patent litigation shut down the work, Walmart dabbled in RFID tagging initiatives. By 2015, the dust had settled with the patent litigation, and Walmart was then concentrating on rolling out its online grocery pick-up business.

By 2019, Walmart began seeing the value in RFID to enhance its omnichannel business. Deanah Baker, who recently retired from Walmart, was heading up omnichannel apparel for the retail titan in 2019. Baker said she pushed to get all the apparel, including footwear and accessories, tagged for RFID. She said that would be the only way to effectively track inventory to the level needed for BOPIS or ROPIS, which is researched online and purchased in-store.

The pandemic pushed forward the omnichannel demand, and retailers with accurate inventory visibility were among the biggest winners when COVID-19 shut down many stores in 2020. Walmart was embarking on its efforts to get its massive apparel division tagged. Baker said the only way to leverage in-store pick with general merchandise like apparel was to use RFID technology to shore up the exact inventory counts as to sizes and colors of each apparel item.

“The SKU [individual item] count in apparel is huge, and there is great variety in sizing and colors in T-shirts, for instance. There were so many items to tag, and the seasonal nature of apparel was also a concern because of the quicker inventory turn,” Baker said.

She said Walmart looked at Macy’s, Lululemon and Target, all using RFID for their apparel. She said the timing was right, so by 2020, the retailer met with suppliers and again launched a massive RFID initiative for its apparel division.

Justin Patton, director of the RFID Lab at Auburn, also worked with Walmart on tagging apparel for RFID. He said it took Walmart a year to implement fully, coordinating with its suppliers. Baker said Walmart suppliers bought it and shouldered the upfront costs of tagging the items at the source as they come off the manufacturing line. But at the same time, Walmart invested in technology hardware and employee training to track inventory on hand with a higher degree of accuracy. Having inventory accuracy counts as high as 90% or better would allow Walmart to begin to offer online apparel orders to be picked up in stores.

Graen said that without the high inventory accuracy, no retailer could run the risk of showcasing items online and not having them available when the customer tries to complete the purchase.

Andy Murray, the founder of Big Quest consulting, said shoppers have three budgets for shopping: money, time and frustration. He said shoppers not being able to find what they came into a store to buy will quickly use up the frustration budget. Murray said that first-time shoppers would likely buy a substitute, but the second or third time the out-of-stock happens, they are much more likely to change brands or retailers.

Baker said if Walmart’s apparel division could become RFID tagged, there would likely be other use cases across different general merchandise categories, which has since happened.

Graen said Walmart has held supplier summits this year and is getting tires and batteries in automotive tagged by the manufacturer. That’s also ongoing in the home and entertainment departments, including blenders, linens, dishes, toys, gaming consoles, computers and cellphones.

He said suppliers have bought into the RFID initiative because there are added benefits to the perceived increased sales from having better inventory accuracy. Graen said suppliers could know where their products are at all times, which comes in handy with fighting claims for non-receipt or short orders. He said it also helps brands like Nike crack down on counterfeiting.

Graen said Nike has tagged its merchandise for years ahead of most retailers. He said Macy’s has its entire inventory tagged, which can help recovery from organized retail crime incidents and loss prevention recovery. He said RFID is gaining momentum in other retail areas, such as fresh bakery in grocery stores. Tagging fresh baked goods packages with unique serial numbers lets the retailer know when something was made and when it should be marked down for reduced sales. He said it also lets the bakery know what should be baked on any given day by its accurate inventory counts with RFID.

“It doesn’t make sense to tag every can of green beans or cereal box, but RFID can add value for produce or fresh foods,” Graen said. “Pharmacies are also using RFID to track counterfeit products, which are a problem in that industry.”

He expects most items in the general merchandise categories will eventually be tagged with RFID at the source. He said the technology is getting better and has even started to be embedded in the packaging.

“RFID is here to stay this time, and retailers and suppliers continue to find new ways to use the technology. Today of the top 1,000 retailers, more than 70% are using RFID in some way to enhance their business operations,” Graen added.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.