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Do the benefits of RFID outweigh the costs?

By Retail Technology | Monday January 13 2014

Wireless ‘track and trace’ technologies have long promised to revolutionise the supply chain but, in in answer RetailTechnology's homepage poll, American Apparel's former CIO thinks that time has arrived

As customers demand greater choice, range, availability and convenience, retailers have had to tighten up their supply chain processes and logistics operations to offer the right product, at the place, time and price at the same time as maximising sales margins and revenue.

In terms of supply chain technology development, the emergence of radio frequency identification (RFID) based wireless tracking was, for some, going to supersede the barcode for its ability to store and scan information without the need for physical contact or line of sight with a label.

Despite early cost, standards and integration challenges, ‘track and trace’ RFID handheld scanners are today capable of scanning at a rate of more than 40,000 labels per hour. And one specialist provider, Enso Detego, has suggested that more than 2 billion RFID labels will be used around the world in the retail sector during this year alone.

Solving retail-specific problems

“There have been a lot of solutions that have been built by RF [radio frequency] engineers who are enamoured of their own technology,” commented Stacey Shulman, a member of the fashion industry RFID specialist’s advisory board. “But, at the end of the day, it needs to solve the problems of a retailer. That retailer doesn’t want to hear about physics problems with backscatter. They want to know, ‘how will this help my business’.”

If anyone knows how to maximise the value of RFID in a retail environment, it is Shulman, having left her role as chief information officer (CIO) of American Apparel last October, where she was part of the team that transformed its supply chain using RFID systems. Her work at the US fashion giant last year also saw her named as one of the seven most influential retail technology executives by Edgell Communications, and ‘CIO of the Year’ for innovation by RIS News in the US.

“I’m an enthusiast for embracing the transformative potential RFID can offer from the process point of view of a retail business,” she told “I may have once thought RFID was a technology looking for a solution. But what changed my view when I went to American Apparel was the vision the chief executive had of the transformative effect auto-ID technologies could have on the business. He believed inventory accuracy is everything in retail.”

Rapid returns on investment

American Apparel began trialling RFID about three years ago. “We started with five stores in pilot,” Shulman explained. “At that point we knew the technology would work, but we needed to work on how to best integrate it into our operations in a way that it would help drive ROI [return on investment].” 

The investment turned out to be an important factor in the company’s success today, as Shulman put it: “The company went from being on the list of companies that could go out of business to a profitable, recapitalised company with increased sales. That happened within two years and it just so happened that was the same time we were implementing RFID across the chain along with some other new technologies as well.”

So, for Shulman, the benefits of RFID definitely outweigh the cost, given the impressive results realised under her watch at American Apparel. “RFID was able to reduce inventory loss, or shrink, by more than 50% in every store across the board," she said. "In some stores the reduction was as high as 75%. We also noticed sales improvements because people tend to steal items that are popular typically. And, if someone steals it, you can’t sell it. It also helped that we also had better replenishment on the sales floor." 

Harnessing operational benefits

She added that modern integration with electronic article surveillance (EAS) security technology and the overcoming of any perceived consumer issues around privacy also contributed to the success of the project.

“The other thing we noticed was that our instore out-of-stocks reduced,” she said. “That was a bit of surprise for us because, although we had a better understanding of where all of the inventory was. But, when you reduce shrink as well, you have better visibility of your stock and stock accuracy is over 99% – where the industry average can be as low as 70% – overall, you can manage your stores better.” 

Shulman added that the ability to write a ‘sold’ code to each tag through electronic point-of-sale (EPoS) integration also contributed to higher levels of visibility and fewer returns, as well as enabling the retailer to expose the history of each product to customers. She concluded by urging those retailers who may have once dismissed RFID as an expensive technology looking to solve a problem to think again. "End-to-end modular systems with good partner ecosystems are a must," she said.

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