Is RFID the Key to Omnichannel?

July 12, 2016     By : Sofia

When it comes to retail, a great omnichannel experience is top of mind these days. But what is omnichannel exactly?  At the highest level, it’s about merging web and store experiences. Forbes recently reported the results of the survey in association with Synchrony Financial, saying that customers prefer to mix technology and in-store visits for major purchases. “Almost half of retailers surveyed by Forbes Insights say that their customers do research online and buy in stores—in other words, they are looking for an omnichannel shopping experience,” the source suggests.  And a recent USPS study suggests that multichannel shopping has, in fact, grown as well.

That said, retailers haven’t always optimized their omnichannel algorithms. Some of the challenges around omnichannel are due to bad inventory systems and an inability to locate or even identify what’s in stores.

Could RFID become a solution?

Radio frequency identification (RFID) is the wireless non-contact use of radio-frequency electromagnetic fields to transfer data, for automatically identifying and tracking tags attached to objects. The tags contain electronically stored information. According to some estimations, the global RFID market is expected to generate revenues worth $3.93 billion in 2016, increasing at a CAGR of 29.3%, from a value of $1.09 billion in 2011.

RFID is the basis for NFC, it uses radio communication to establish a connection between two devices in close proximity. The examples of successful use of RFID technology are Oyster card used in Greater London public transportation system and NCR Corporation, one of the leaders in end-to-end RFID solutions.

The benefits of RFID implementation have been noticed two years ago in a study performed by the University of Pennsylvania that indicated the following results for retailers that successfully implemented RFID: 4% increase in sales, 8% increase in customer service, 11% cost reduction, 24% improved visibility, and 37% increase in operational efficiency.

One of the largest retailers, Macy’s, has recently taken live a new program that employs RFID to allow omnichannel fulfillment of consumer purchases, right down to its last available unit of in-store merchandise.

As reported by the RFID Journal, the Pick to the Last Unit (P2LU) program enables the retailer to list goods for sale online even when there is only one such item available at the store. In the past, inventory counts were simply not precise enough to ensure that a unit of a particular product was actually in stock and available for sale.

Inaccuracy in inventory tracking even in small numbers each month can accumulate to a significant number when annualized. As a result, the omnichannel sales become challenging, especially if only one or two units of a particular product were reported to be located at a store. And Macy’s has been taking steps to leverage RFID to solve the problem.

The solution has been in test for the whole of the past year and appeared to be effective in increasing online sales and decreasing the number of marked-down products in the single-item category.

Macy’s is neither the first nor the only retailer leveraging RFID. Back in 2009, in a 13-week involving EPC Gen 2 passive RFID tags to monitor the inventory levels of denim jeans, Bloomingdale’s was able to improve accuracy by 27%, while reducing labor costs. In addition to improved accuracy in tracking the local inventory, the test provided evidence that RFID can also be used as an effective means of tracking inventory that is stolen. Zara, one of the most successful retailers, has also been building its business around RFID since 2014.

The most recent successful test of RFID technology has been reported on Saturday after a 20-month trial. And although the example comes from the transportation industry, it proves the potential of the technology to optimize the processes and cut the costs significantly.

Determined to quell speeding, idling and truck accidents, Minnetonka-based AmeriPride Uniform Services started installing high-tech monitoring devices across its entire fleet. The device installed in each AmeriPride delivery truck was activated by RFID cards carried by each driver. The test revealed $500,000 reduction in fuel and maintenance costs in first 12 months, 99% decrease in speeding events since implementation, 95% reduction in idling (approximately 35,000 gallons of fuel saved in 2015) and other significant improvements.

There are certainly more examples, but the bottom line is that RFID technology can bring benefits such as the reduction of time and labor costs via automated inventory reports, support to omnichannel fulfillment (ship-from-store and pick up from store), improvement of back-to-front replenishment, reduction of store out-of-stocks and others.

High cost of implementation as a downside

Although RFID technology has a great potential in a multitude of areas and might become the key to omnichannel, there is a high price to it and the implementation is not for the lighthearted.

In January 2015, the cost of implementation of RFID was, in fact, mentioned as one of the obstacles to the technology adoption by 18% of the surveyed in a study by Kurt Salmon. Other reasons are “management focused on other priorities” (47%) and “using their own inventory management system” (18%).

An average of 18% of surveyed in a study mentioned the prohibitive cost quite fairly. In April 2015, Thomas Watson, the president and CEO of AMI, broke down the cost of RFID tags and readers indicating significant investments required to adopt the technology.

Costs for RFID Tags and Readers

Tags

Readers

Basic passive RFID: 10 cents USD each – Good for paper or other non-metal, liquid material. Will not work for IT or metal assets. Handheld – Passive RFID handheld readers. A human being waves the scanner near assets. Great for manual auditing of a location, data center rack, etc. About $3,000 each.
Metal passive RFID: $1 USD each – Larger passive tags that work on metal surfaces. Required for servers or metal-equipment, especially in a data center. Fixed Position passive RFID – Portal readers installed in a doorway and detect assets moving through.  Figure on $10,000–20,000 per portal for hardware, installation and configuration.
Active RFID: $15-$20 USD each – Powered RFID tags that emit a signal every 30 seconds. Active RFID is fully automated and highly accurate. No human involvement is required and has nearly 100% read rates. Gives immediate notification as things move around or disappear. Active RFID readers – Zonal readers that cover about 3000 square feet and detect active RFID tags in their zone. Fully automated, notifying administrators and updating the database in real time. Figure on $1,250–$1,500 each.
Active RFID Rack/Room Locators – These work in conjunction with Active RFID readers to report the precise rack or room location of the active RFID-tagged asset. Figure on $150–$200 each.

Source: Simple Cost Analysis for RFID Options

Emphasizing the importance of tailored assessment in each case of implementation, Mr. Watson added, “Each organization has a unique profile of asset receiving, distribution and volume. And, of course, there is always the issue of capital expenditures. However, armed with a clearer understanding of the advantages and disadvantages of each tagging technology, it’s possible to make an informed choice as to which one (or combination) provides the best return on investment.”

Although the price already seems high, the cost has been broken down to only tags and readers. However, there are additional areas of investment that contribute significantly to the total cost, such as consulting, analysis, and services, R&D, troubleshooting, the cost of upgrades, the batteries for tags, the software and the data storage and analysis expenses.

Stay Fresh on FinTech. Get our Daily Insights.

Sofia

Sofia is a contributing writer for LTP based in New York. She is a market research professional skilled in data analysis and visualization. Sofia has an extensive experience in consumer behavior studies and marketing analytics. She is passionate about disruptive startups with innovative business models that are having a powerful impact on the industries.

If you have any suggestions or questions for the author, please email us at follow@letstalkpayments.com