RFID’s ‘Quiet Revolution’ in Retail

On a recent Saturday, shoppers at the Zara store in New York’s SoHo neighbourhood queued in line to drop their new finds into large bins dotting a long countertop on the shop’s second floor.

“Welcome to the self checkout,” read a screen above each bin.

Self-checkout usually involves customers scanning a barcode on the tag of each item, but the bins automatically recognised the garments and tallied the total owed. The customer just had to follow the on-screen instructions to pay, remove the security tags and walk off with their new purchases. A sales associate stood by to help, assisting several customers through the process, especially with the security tags.

Behind the experience was a decades-old technology called radio-frequency identification, or RFID. As far back as the early 2000s, proponents touted the concept as having the potential to transform retail by giving businesses the ability to quickly and accurately track every pair of socks or sweater, whether it was on the store floor or a warehouse shelf, without the need to count every item by hand. But few retailers took the plunge, citing the high cost and implementation issues.

Zara was an exception. In 2014, the retailer’s parent company, Inditex, started rolling RFID out to all items across its brands, embedding chips in its plastic security tags. Since then, the technology has become integral to its business. RBC Capital analyst Richard Chamberlain wrote in an April research note that Inditex’s use of RFID at Zara “freed up staff hours, made in-store replenishment easier and optimised full price sales.”

This March, Inditex announced it would go a step further by eliminating its hard security tags and sewing RFID directly into garments. The move should help in “facilitating the use of self-scan checkouts and reducing a key source of customer friction at Zara — long queue times,” Chamberlain wrote.

Inditex may be all-in on RFID, but for other retailers, the technology still presents challenges. To tag items and merge the RFID data with a company’s existing systems takes work and resources, and sceptics of the return on investment remain.

“There are the converts that are like, ‘RFID is the best thing that has ever happened to our company’ … And then there are the people who have not been converted yet who are like, ‘It’s a cult. RFID is a cult. I don’t believe it. The value’s not there,’” said Nikki Baird, vice president of strategy for Aptos, a provider of retail management software.

In recent years, the cult of believers has expanded as chips and readers have gotten cheaper and more accurate and the need to maintain a precise picture of inventory across channels grows as companies lean into omnichannel capabilities. Uniqlo is using it to power its own self-checkout system and reduce items being out of stock on the salesfloor. Nordstrom, Macy’s, American Eagle and more have highlighted it on recent earnings calls, citing uses from better inventory management to dealing with theft.

The consultancy Accenture found 93 percent of North American retailers surveyed in 2020 were at least piloting the technology, up from 34 percent in 2014, with nearly half having fully adopted it. In Europe and Asia-Pacific, 77 percent had at least begun testing, with significant shares at full adoption.

“I often call it the quiet revolution,” said Marshall Kay, global director of retail transformation services at Avery Dennison, a large RFID provider. “There has been this proliferation within retail.”

The Cult of RFID

Due to factors like counting errors, mistakes in packing and shipping, misplaced items and theft, retailers can have surprisingly poor knowledge of what stock they’re holding, with studies finding accuracy levels of around 50 percent or less in some cases. Even small levels of inaccuracy can drag down a store’s sales and profits.

With RFID, you simply wave a wand over a tagged item to identify it. Inventory audits that once required long hours counting stock by hand every six or 12 months could be replaced with fast, frequent updates, letting stores know what needed to be replenished on the sales floor, what was out of stock and what wasn’t moving.

McKinsey has estimated the technology can boost inventory accuracy by more than 25 percent. One study of ten retailers including Adidas, C&A, Lululemon and Marks & Spencer by ECR Retail Loss Group, a working group of retailers and manufacturers, found similar accuracy gains, with resulting benefits including increased sales on lower levels of stock and reduced staff costs.

The picture wasn’t all rosy. ECR found putting RFID systems in place and integrating them was not easy. The biggest headache came from combining the data generated by RFID with existing retail systems. Companies also ended up with multiple data streams if they didn’t tag all items from the start. And they discovered it’s not a technology you just set up and let run. It required an ongoing commitment and resources to ensure it was yielding results.

Still, all 10 companies “were unequivocal in their assertion that the [return on investment] had been achieved,” the study said.

“Item level tagging, especially when I’m a colour, size business [as opposed to grocery], that is really valuable,” Baird said. “If you don’t know what your inventory accuracy is, you have to build in safety stock.”

Rent the Runway may have even greater need for item-level tracking than a traditional retailer. Every garment it ships out also comes back and then goes through inspection, cleaning, quality control and repairs before it’s sent to the next customer. In 2021, while it dealt with a pandemic slowdown, it took the opportunity to implement RFID.

According to Anushka Salinas, the company’s COO and president, the time saved by an employee passing items over an RFID reader instead of having to scan a barcode inside each one has had a substantial impact, while the data generated has let the company optimise how it routes products.

“RFID contributed to a pretty dramatic reduction in labour costs in our inbound operations,” Salinas said, pointing to a 30 percent decrease in non-transportation fulfilment costs between fiscal 2020 and 2021.

The Next Frontiers of RFID

To wring extra value from the technology, retailers are finding additional uses, like the self-checkout Zara and Uniqlo offer. Not all have panned out. The so-called magic mirrors enabled by RFID never caught on. But capabilities centred on providing better data are gaining converts.

In March, American Eagle announced it would begin implementing a new system across its stores coupling RFID with a variety of artificial intelligence called computer vision after a pilot test showed greater than 99 percent accuracy on availability and location of products.

“You might know something is in the store, but if I’m working at a high-volume, fairly large square-foot store, I don’t know where it is. It could be in the fitting room. It could be put down by a customer in a different department,” said Spencer Hewett, founder and chief executive of Radar, the company providing the technology to American Eagle.

Radar uses sensors about the diameter of a toilet seat that are fitted with cameras and installed at intervals in a store’s ceiling. Combined with RFID tags, they provide a real-time picture of inventory staff can see on a 3D interface, letting them find products without even needing to search with an RFID wand.

Brigitte Cooperman, COO of sneaker retailer Snipes and former COO of Urban Outfitters, is a member of Radar’s board and believes it can yield significant savings in time and therefore money. (Snipes isn’t using the technology but other retailers are piloting it.)

“Payroll within a four-wall environment is the highest variable cost, so you’re always looking for efficiencies,” she said.

Companies like Macy’s are also using RFID readers at their exits to help with theft — not preventing it but collecting information on what’s being stolen. A retailer can at least remove the items from its system so it isn’t left trying to fill orders with those products or telling a customer something is available when it isn’t. The data can also indicate which products are most targeted so the store can increase security around them.

Kay said they’ve seen a “clear uptick” in this use of RFID. Another gaining interest is installing readers at the fitting area’s doorway to see which items are brought in — and ultimately which are purchased or not.

Of course, these insights are only beneficial if retailers make use of them. A point the ECR study made is that RFID doesn’t magically deliver results on its own, calling it “merely a technology that generates data.” Whether and how businesses use that data determines its worth.

The technology still isn’t universal, and there continue to be those who think RFID is, in Baird’s words, a cult. But as data becomes more valuable, the cult keeps growing.