Changing tide

It’s been more than a decade since Walmart’s big RFID idea flopped in spectacular fashion, but the technology lives on, bolstered by the rise and rise of online shopping. Scott Thompson reports

Like all heavily hyped technologies, RFID has had its fair share of ups and downs and false dawns. For many years the aborted 2003 Walmart project loomed large over the industry. The retailer had announced ambitious plans to get all suppliers onboard with the application of RFID tags to pallets and cases of goods sent to its distribution centres. The project was hailed as the start of a retail RFID revolution. But things didn’t work out according to plan and Walmart was left with egg on its face as it scaled back its plans, leaving many to ask if this was a technology whose time had come and gone.

In the here and now, however, a revival of fortunes is on the cards. And it’s all thanks to the advent of omnichannel retail. According to a new Frost & Sullivan report, Analysis of the Global RFID Market in Retail, as retailers move away from the brick and mortar concept to e-commerce, the technology assumes great importance especially for efficient inventory management. As a result, the market earned revenues of $737.8 million in 2014 and this will increase to $5409.0 million in 2020.

It’s a no brainer, as far as George K. Hoffman, CEO at FineLine Technologies, is concerned. “The technology provides a fast and reliable way to achieve real-time inventory accuracy, which is essential for omnichannel sales. Other major benefits of using RFID include in-store consumer engagement, such as interactive dressing room solutions, and more effective loss prevention. Retailers also are leveraging RFID to improve the checkout process,” he says.

Alison Wiltshire, global propositions director, digital consumer, global industry practices, at BT Global Services, agrees that it’s about more than efficient inventory management. It’s no longer enough to have the veneer of an omnichannel operation. Competition is driving retailers to offer increasingly rapid turnarounds for services like Click and Reserve, Click and Collect and deliver from store, sometimes within the hour. This can only be achieved if they have a thoroughly accurate understanding of available inventory to sell across all channels.

“In many circumstances, a product might not be available for sale. For example, a garment might be used to dress a mannequin on display in a department store’s shop window. The mannequin might be sitting on a chair watching a television. It’s unlikely that the store would want to remove these items from their carefully designed and beautifully presented display, or that the items would be fit for sale,” she says. “Cost as well as time frames is also a major factor. If a retailer has visibility of inventory across their channels, they will be able to choose the most practical location from which to fulfil an order, helping improve the efficiency of the process, especially for “ship from store” and online orders. As tags are the most expensive part of rolling out RFID at item level, it’s sensible to make the most of the investment by looking at other applications that can leverage the fact that items are tagged. This is a great opportunity for innovation by brands and retailers, and there are many in-store solutions and applications now available that can harness tags to deliver an enhanced customer experience. For example, tags can be used to present customers with product information and reviews as well as guidance for sales associates, which could spur further engagement.”

Once reluctant to climb onboard, blaming a fundamentally flawed business case, retailers now have an increasing appetite for this technology. Mandates from large retailers such as Walmart, Gerry Weber and Metro to implement item-level tagging in their outlets are, for instance, set to particularly boost the tags and hardware segments. “Admittedly, over the past ten years or so, there have been a few false starts. Initially, the technology wasn’t robust enough and there were concerns about the cost of tags. Then the worldwide recession hit,” says Wiltshire. “Today, RFID technology is proven. Its accelerating adoption, especially in fashion and apparel, has delivered economies of scale for the tag manufacturers, which in turn is driving down the cost per tag. There have also been innovations in the RFID tags themselves. Specialist tags now available for previously hard-to-tag items like cosmetics and jewellery. The business case is now proven and robust and a number of very large US and European retailers, and notably now Tesco in the UK, are speaking publically about deployments and the benefits to be derived. Retailers that are not in the process of deploying or trialling RFID will be at a considerable competitive disadvantage if they ignore this trend.”

Hoffman also believes that a big driver is lower tag cost. “Any retailer will agree that having better inventory visibility is an RFID benefit. However, every retailer has limited resources to apply to strategic projects. They have to rank potential investments based on ROI, comparing anticipated benefits to implementation and maintenance costs. While the benefits are certainly real, the relatively high cost of implementation and tagging has failed to yield an ROI acceptable to most retailers. Yet the tide is changing very quickly as RFID tagging costs decrease. When Marks & Spencer began RFID item-level tagging in 2004, a tag cost approximately US$0.30 (£0.20). Today, if a retailer were to buy a similar volume of tags, each tag would cost less than US$0.10 (£0.07). A combination of factors is driving down tag costs, including lower inlay costs, more efficient tag production processes and source tagging (i.e., attaching tags at the vendor’s factory instead of the retail distribution centre or store).”

Potential barriers

At the same time, however, a lack of end user knowledge poses a challenge to market progress, along with issues pertaining to consumer data privacy and security. Hoffman, however, writes these off as concerns which were more prevalent in RFID’s early days. “They were a factor when Benetton pulled back its RFID initiative. But we really don’t see these issues as challenges any longer. Shoppers are realising more benefits of RFID, such as consistent product availability and flexibility to return online purchases at local stores. While enjoying these advantages, they are less likely to challenge the technology. For comparison, consider how consumers initially were reluctant to provide their credit card information online to make e-commerce purchases. Over time, those concerns were largely alleviated. Now you could argue that RFID tagging presents fewer risks to shoppers than credit card theft.”

Russell Holland, VP sales UK & EMEA distributors, Checkpoint Systems, prefers to turn a negative into a positive. RFID, which is employed ostensibly to aid loss prevention and streamline inventory management, could also be used in alternative ways, he argues. The technology has the ability to track an individual’s spending habits, preferences and even physical movements. This raises issues pertaining to consumer data privacy and security as the information obtained could be used for ulterior motives such as targeted marketing and dynamic pricing. However, retailers already gather huge amounts of data on their shoppers so it’s just a case of ensuring they are responsible with the additional information. “Despite the potential for challenging implications, many of the concerns surrounding RFID are currently largely theoretical. A wide range of the potential applications are not extensively utilised as they are currently being trialled,” he says. “In addition, anticipating the potential ulterior use of RFID in the future the potential threats to individuals and the appropriateness of the current legal framework are now being considered. Protection is granted by EU data protection laws and, as the use of RFID continues to grow, it will be scrutinised from a legal standpoint and adapted accordingly. The benefits afforded to retailers through the use of RFID fundamentally outweigh the largely theoretical concerns and the exponential growth usage should be unaffected.”

BT Global Services’ Wiltshire, meanwhile, believes that, as with all new technologies, consumers need to be educated on the benefits of RFID and their concerns acknowledged. “It’s up to the wider RFID ecosystem to reach out to consumers directly (and via retailers) to communicate the benefits of this technology for all stakeholders.”

The future
So, a technology that at one time looked like it had no future in retail now has huge potential. And as adoption accelerates, its benefits will increase for retailers, brands and consumers, Wiltshire observes. “The most obvious benefit is that it provides retailers with the key strategic building block that they need if they’re to efficiently realise their omnichannel strategy. As the number of RFID adoptions continues to grow, sales associates are becoming more confident with the technology and retailers are considering other uses to drive greater in-store interaction and engagement. For example, retailers are already using tags to trigger digital end points, such as in-store digital displays that customers can engage with directly (or via sales associates) to gain greater insight, independent reviews, suggestions and recommendations as well as the nearest availability of the product. A recent independent study from InfoTrends indicates that digital signage increases purchase amount by 29.5 per cent and sales volumes by 31.8 per cent. A retailer can exploit this by ‘digitalising’ their merchandise, using RFID tags, to achieve these benefits.”

Checkpoint Systems’ Holland also sees RFID being used to engage with customers. For example, they could scan labels applied to meat products using a smartphone to confirm product ingredient and nutrition information and/or to gain additional information such as recipe suggestions. “For apparel retailers, there are many innovative RFID uses that can help improve customer engagement, loyalty and retention. For example, customers may be able to scan labels applied to apparel products to discover brand information and special offers in-store. In future, RFID could also be used to highlight other relevant products that may be of interest, helping retailers to capitalise on up-selling opportunities.”

Whilst Fineline Technologies’ Hoffman states: “Look for early adopters to further leverage their investments by rapidly introducing new technologies, such as shopper engagement tools, automated checkout and more intelligent loss prevention systems. Those retailers will be improving the shopping experience in ways that are impossible for competitors without RFID to emulate.”

Down the road, as retailer RFID adoption accelerates, other technology players will look to capitalise on the trend, he adds. For instance, the mobile sector may bring some new applications to market. “Today, mobile phones can read NFC signals from products containing NFC chips. They can pick up NFC signals when they are about four inches from the product. But most phones cannot read signals from UHF chips, which are used for RFID item tagging. If enough retailers adopt UHF, there will be a much larger consumer market to potentially reach through their phones. As a result, mobile technology players may want to develop phones capable of reading UHF chips. This would allow retailers to further engage shoppers in a very personal and targeted way via their phones.”

All in all, it has been quite a journey thus far; a rise and fall and rise again story. From high profile failure to the saviour of brick and mortar retailers. Who’d have thunk it?

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