Background and Context

Since the term Radio Frequency Identification (RFID) came into common usage within the retail environment, around the end of the 1990s, it has in many respects been an idea driven more by hope and hype than practical realisation. For retailers it promised a world where supply chains would become fully transparent, with all products identifiable in real time, bringing an end to oversupply and out stocks – the ultimate optimisation tool, allowing retailers to truly deliver ‘just in time’ supply chains tailored precisely to the needs of their customers. In addition, RFID offered other ‘game changing’ benefits such as the end of traditional checkouts and associated queuing for the consumer – products would automatically ‘checkout’ as they left the store, with the consumer’s credit card being billed accordingly (sound familiar?). 

Within the realm of loss prevention, the RFID ‘revolution’ offered much promise, with shop theft becoming a thing of the past as thieves would be automatically identified as they tried to leave the store without paying. Similarly, problems such as returns fraud would be eliminated as the previous ambiguity around whether a particular ‘item’ had actually been purchased would no longer exist – the product would ‘tell’ the retailer its current status (bought or not bought). 

Back in the early 2000s it seemed RFID was going to totally transform the retail world – indeed, it was described by one of its earliest advocates in the following glowing terms: ‘as significant a technology as certainly the Internet and possibly the invention of the computer itself’. 

If we skip forward 17 years, then it becomes very quickly apparent that RFID, as yet, cannot be remotely put in the same category as the Internet in terms of its impact upon the world or more specifically retailing. Arguably, it is a technology that has seriously struggled to match up to the hype heaped upon it at the end of the 1990s and into the early 2000s. It continually floundered on the rocks of physics and economics, with the ‘Faraday Cage’ in many respects proving to be the prison ‘cell’ from which RFID has struggled to escape. A such, many of those long in the tooth in retailing have become familiar with the sentence that starts: ‘…in the next five years RFID will…’!

However, the outlook now appears to be changing fast for RFID and what has been seen in the past few years is a much more enlightened, less evangelistic and more realistic approach to how RFID may be able to play a role within retailing, one that recognises its limitations and plays to its identifiable strengths. The technology has also had the opportunity to gradually mature, away from the spotlight of unrealistic expectations, and begin to show how it can be used to help retailers resolve some of their ongoing and growing concerns. This can be seen particularly in parts of retailing that do not have a concentration of products largely made up of metals and viscous fluids, which have traditionally proved highly challenging for RFID to cope with. 

Retailers focussed on apparel and footwear in particular have begun to use this technology to help them manage their supply chains more efficiently, utilising RFID’s capacity to bring transparency and ease of audit into the retail space. As pressures within retailing concerning competition and growing consumer demands for greater and more accurate availability have increased (particularly with the growth of omni channel), then some companies have begun to invest in RFID to help them respond. While we are still some way from RFID becoming ‘bigger than the Internet’, it would seem that a more gradual and incremental introduction into retailing is underway, one that recognises its weaknesses but at the same time is beginning to take advantage of developments in the technology. 

It is within this context that GS1 and the ECR Community Shrinkage and On-shelf Availability Group commissioned a piece of research to better understand about how this technology is now being used and what lessons can be drawn from its development, its implementation and its impact on retail businesses. Based upon the detailed experiences of 10 companies that have invested in RFID, the study set out to answer the following questions: 

·       What is the business context within which some retailers decide to invest in RFID?

·       How do these companies begin their RFID journey?

·       What steps do they follow when undertaking a trial?

·       In what ways do they measure the impact of RFID and what have they found?

·       How do they begin to roll it out to the rest of the business?

·       How have they dealt with the key challenge of integration? 

·       What role, if any can RFID play in managing loss prevention?

·       What lessons have these companies learnt on their RFID journey?

·       How might they be planning to use this technology in the future?

This research adopted a case-study methodology with data being collected via requests for various types of quantitative data relating to the use and performance of RFID, together with primarily face-to-face interviews with company representatives from the following companies: Adidas; C&A; Decathlon; Lululemon; Jack Wills; John Lewis; MARC O’POLO; Marks & Spencer; River Island; and Tesco. Collectively, these companies have total sales in the region of €94 billion a year and purchase at least 1.870 billion RFID tags a year, equivalent to the use of about 60 tags per second.

As with any research, there are limitations in what can be achieved and presented. While this research attempted to offer an independent and critical review of the use of RFID in the retail sector, the case-study selection process needs to be taken into account when reviewing the findings. Because of the chosen selection criteria and the challenge of obtaining retailer support, no companies are represented that have trialled RFID and decided against rolling it out – the views of these types of company are absent from this research. 

In addition, there are some companies that have adopted a different approach to using RFID than those represented in this research, namely using a hard tag variant applied either at the point of manufacturer or later in the supply chain. While one of these companies was approached to take part in the research, they declined and so it is not possible to include their experiences and views of using RFID. As such, it is important to recognise that the general approach adopted by these 10 companies is not necessarily representative of all retail companies that are now using RFID. 

Summary Findings

Presented below are the headline results from the research. For a more detailed review of the findings, a free report is available (details of how to receive this can be found at the end of the article).

The Business Context for Investment

Driving Sales: The primary goal of investing in RFID was to deliver improvements in inventory visibility and accuracy, which in turn would grow sales. 

Optimising Stock Holding: Respondents also recognised the potential of RFID to enable them to optimise their stock holding, reducing capital outlay and improving staff productivity.

Fewer Markdowns: Most case-study companies regarded RFID as a key tool in helping to reduce the amount of stock they offered at discounted prices.

Helping to Drive Innovation and Business Efficiencies: RFID was frequently viewed as part of a broader organisational change project focussed on putting enabling technologies in place to drive transformational change to achieve future success.

Recognising the Omni Channel Imperative: This technology was viewed as a key driver in developing the capacity to deliver a profitable omni-channel consumer experience – in effect the organisational ‘glue’ that will hold together much of the architecture of 21st Century retailing.

Measures of Success

Increase in Sales: seven of the 10 case studies shared data showing a sales improvement in the range of 1.5% to 5.5%. For SKUs identified as being out of stock by RFID systems, the growth was even higher. Based upon this data, the 10 companies taking part in the study may have realised an RFID-driven sales uplift of between €1.4 and €5.2 billion. 

Improved Inventory Accuracy: Companies typically had an improvement from 65%-75% to 93%-99%. 

Stock Availability: Some of the companies taking part were now findings SKU availability in the high 90% region.

Reduced Stock Holding: One-half of the case-study companies shared data on this measure, indicating a stock reduction of between 2% and 13%.

Lower Stock Loss: One company suggested that their shrinkage losses had been reduced by 15%.

Reduced Staff Costs: One company had measured a saving equivalent to 4% of their store staffing costs, which if rolled out across the case-study companies would be in the region of €378 million.

Return on Investment: all 10 companies were unequivocal in their assertion that the ROI had been achieved, and based upon their trial experiences, further roll out across the business was fully justified and embraced by the rest of the business, often with considerable enthusiasm and optimism. 

Learning Lessons

Role of Senior Management: the role of the senior management team in both the initiation and subsequent delivery of the RFID project was seen as paramount – without their active support and recognition of the financial imperative, virtually none of the projects would have been initiated.

Choosing a Business Leader: The RFID project leader was typically the person who had responsibility for on-shelf availability/stock integrity, regardless of where they were located within the business hierarchy.

Engaging the Business: Respondents to this research clearly articulated the importance of working hard at getting cross functional buy in – RFID projects have long tentacles embracing most retail functions.

Understanding Your Business Context: Many respondents considered this one of their biggest challenges – understanding how RFID will impact on the business. Undertaking detailed process mapping and recognising how products move through the supply chain was considered key, as was assessing the impact the physical environment might have on the functionality of the technology and how it would integrate (or not) with legacy systems. 

Challenges of Integration: By far and away the biggest headache these companies faced as they progressed on their RFID journey was the thorny issue of integration with legacy retail systems. A number felt they had not planned sufficiently well on how to resolve this issue and counselled future adopters to not only take integration seriously but think very early on in the process the extent to which they want new and existing data systems to communicate.

Seeking External Help: Virtually all of the companies taking part in this research had sought some degree of external advice as they began their RFID journey: RFID consultancies, technology providers, other retailers, and organisations developing common standards such as GS1.

Choosing RFID Technologies: Most companies had adopted a circumspect, modest and highly price conscious approach to the selection and use of their RFID technologies – the mantra of ‘keep it simple and highly focussed’ was very apparent. 

Tag Reliability: No companies had any concerns about the reliability of their chosen tags; a more prescient issue now was ensuring the tag remained attached and its position on the product was optimised.

Choice of Readers: By far and away the predominate reader technology used was handhelds provided to store staff. Relatively few companies were utilising any form of transition readers (to track product moving between different parts of the supply chain), integrated point of sale readers or exit detection readers. As yet, none had committed to using in-store overhead readers beyond some ongoing store trials.

Avoid Tagging in Store: All 10 companies taking part in this research had opted for a long-term strategy that involved the RFID tags being applied at the point of manufacture. 

Standards Matter: While case-study companies varied in the degree to which they were sensitised to the importance of adopting RFID-based standards, all agreed that without them, it would be more difficult to innovate and evolve in the future. Standards were highlighted as being key in reducing confusion in the supply chain and avoiding getting locked into any particular provider.

Undertaking Trials: All companies had undertaken a combination of Proof of Concept Trials (does the technology work?), Pilot Trials (how will RFID operate in our particular environment?) and Development Trials (how can we evolve our RFID system?). A number of companies urged caution in the speed with which Pilot Trials in particular were undertaken, to ensure that the full impact of the introduction of the technology can be fully understood across a range of different environments. 

Measuring Impact: Ultimately, RFID is an intervention used to enable the business to be more successful in meeting its core objectives of being a sustainably profitable retailer. In and of itself an RFID system is little more than a combination of technologies that provide the user with actionable data. Most case-study companies had relatively few KPIs they wished to achieve, with an improvement in sales being the most prominent. But it is important to understand how any chosen KPI will be delivered, including identifying the organisational drivers/mechanisms that will enable them to be achieved and how they will be measured.

Rolling Out RFID: All companies had committed to rolling out their RFID programmes – a ringing endorsement for how valuable it was considered to be to their businesses. As with the Pilot Trials, some companies counselled caution concerning the speed of roll out, citing numerous difficulties they had faced by moving too quickly. Of particular importance was timing – avoiding peak times in the retail calendar and investing in high quality and sustainable training for retail store staff.

Loss Prevention and RFID: Few of the companies regarded their RFID system as an effective tool to actively reduce stock loss, particularly malicious forms of loss such as shoplifting. Primarily this was because the tags being used (swing tags and stickers) were very easy to remove and current exit readers were viewed as being relatively unreliable. However, some were using RFID data to better understand which products would benefit from additional security as well as helping in the evaluation of store trials of stock loss interventions. For one retailer, an indirect benefit of store staff now having more time to be on the shop floor (because RFID had reduced the time other tasks had taken) was that they could increasingly act as a visible deterrent to prospective shop thieves.

Remember RFID is a Journey: Case-study companies were keen to remind prospective users that RFID systems are not a plug and forget technology – they require ongoing commitment to ensure they remain fit for purpose and capable of delivering the KPIs originally required by the business to justify any recurring investment.

Keeping it Simple: The final piece of advice many offered was to keep any planned RFID project simple – do not make it over complicated, and remember RFID merely provides data; if you do nothing with it then it is destined to fail.

RFID in Retailing

As stated at the beginning of this article, RFID has been on a long journey within retailing, frequently failing to live up to the hype heaped upon it by those keen to see it develop. But, this research has shown that in an appropriate retail environment, and by adopting an approach founded upon focussed pragmatism driven by financial probity, it is a technology now capable of delivering real benefits to the retail community and their customers. It is perhaps now time to stop asking the question: where will RFID be in 5 years?