- RFID Sherpas

An Apparel Exclusive Report
Pumping Up The Volume:
RFID In The Apparel Industry
JOHN-PIERRE KAMEL, Principal at retail consultancy RFID Sherpas LLC
MARSHALL KAY, Principal at retail consultancy RFID Sherpas LLC
arlier this summer, within a span of six weeks, two of
North America’s three largest mid-market department
store chains made big announcements regarding the
pace of their chain-wide rollouts of RFID. And the aftershocks
are still being felt, both domestically and abroad.
Within the past four years the apparel industry has rapidly
advanced from the IF stage (wondering if RFID would be
embraced), to the WHEN stage (wondering when adoption
would spike) and now the HOW stage (how to implement
most efficiently at scale) when billions of tagged garments flow
through the supply chain each year.
The spotlight now falls squarely on other leading department store retailers. It also falls on specialty apparel retailers
and big box athletic retailers that have yet to publicly discuss
similar programs for improving their
inventory accuracy and shelf-level visibility.
This year’s Special Report will highlight a range of pertinent topics and
explain the significance of the exciting
market developments that were
observed over the past 12 months.
E
The Big News
J.C. Penney Aims To Be 100
Percent RFID Tagged
By February 2013
Speaking at FORTUNE’s Brainstorm
Tech conference in Aspen, Colo., J.C.
Penney’s CEO announced that he aims
to have every piece of J.C. Penney’s merchandise tagged by February 1, 2013.
Whether the 100 percent mark will
in fact be reached, by February 1st or
ever, has predictably fueled much speculation. But this question misses the
point. The real story here is that J.C.
Penney is the first major clothing retailer to go on record with concrete plans to
4 PUMPING UP THE VOLUME: RFID IN THE APPAREL INDUSTRY
tag fashion and seasonal merchandise categories in their
entirety. While it is widely believed that Macy’s Inc. will
progress into these categories too, it has yet to disclose any
such plan.
The second part of the story, which also deserves attention,
is that J.C. Penney is pushing beyond soft goods and is tackling
categories such as fragrances and jewelry that have long been
on retailers’ radar screens. This may inspire luxury department
stores to inch forward, and if so, this will have long-term implications for all of the designer fashion brands.
It will be interesting to see how quickly J.C. Penney integrates RFID with its Findmore ® smart fixtures. These fixtures, deployed on the sales floor, allow customers to
search inventory. A garment’s RFID tag can trigger content on
the fixture’s screen more quickly than
scanning that item’s barcode. And there
are other benefits that do not require
placement of RFID readers in these fixtures. RFID will improve the accuracy of
the real-time inventory data presented
to shoppers who use Findmore®.
If J.C. Penney has confidence in its
data, and has confidence in its associates’
ability to quickly locate merchandise,
then one can easily envision scenarios
where shoppers can request that items on
the screen be pulled for them to try on.
According to British consultancy Envision
Retail, shoppers who use fitting rooms
are 71 percent more likely to make a purchase than those who merely browse.
The size of their purchase is usually twice
as large, and if they received service while
in the fitting room, their purchases are
typically three times larger.4
RFID will improve the accuracy of the
real-time inventory data presented to
shoppers who use Findmore® Smart
fixtures at J.C. Penney.
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An Apparel Exclusive Report
Of equal interest will be the impact that this expansion of
RFID has on J.C. Penney’s omni-channel fulfillment plans. Instore pick up is not currently an option available to its customers. How soon might that change? J.C. Penney has yet to
reveal any plans regarding adding a fulfill-from-store capability. Will that soon change too?
Finally, by operating with such a large volume of tagged
merchandise in its stores, J.C. Penney is positioning itself to be
the first major department store retailer to leverage RFID to
dramatically enhance its loss-prevention capabilities. Many
retailers are eager to augment their existing anti-theft programs, but it will be hard for them to scale the learning curve
and “crack the code” while most of their inventory remains
untagged.
Macy’s Inc. Targeting April 2013 For Chain-Wide
Cycle Counts
Six weeks earlier, at the GS1 Connect conference, Macy’s Inc.
provided a rare update regarding the status of the chain-wide
rollouts in its Macy’s and Bloomingdale’s stores, which it had
announced in September 2011. And the news was promising.
The big date is April 2013. That is when each of those stores
is expected to begin fully leveraging RFID to drive replenishment activity in eight merchandise categories:
1. Men’s Bottoms
2. Men’s Suits
3. Men’s Suit Separates
4. Sport Coats
5. Dress Slacks
6. Dress Shirts
7. Belts
8. Hotel Bedding
Results from extensive trials in eight stores in the Denim,
Innerwear and Men’s Bottoms categories confirmed the value
of enhanced inventory visibility. RFID-enabled categories in
test stores achieved 50 percent stronger revenue growth than in
control stores. This was no fluke. In the RFID test stores, the
non-RFID categories underperformed the control stores,
exhibiting 35 percent less revenue growth.
Many apparel brands are now tagging for Macy’s Inc. at
point of origin. The roadmap for Macy’s Inc. also involves
source-tagging all private-label merchandise in replenishment
categories and the initiation of trials in the fine jewelry and fragrance categories.
Somewhat obscured by the major news, but certainly significant too, is the fact that every Macy’s and Bloomingdale’s store
nationwide is now using a comparatively simple RFID application that assists in ensuring that all footwear SKUs stocked in
the stock room are being displayed on the sales floor. An RFID
tag is being placed on one of every SKU so that no color or style
variations are unrepresented.
6 PUMPING UP THE VOLUME: RFID IN THE APPAREL INDUSTRY
Department Store Sector Passes the Tipping Point
As we predicted in 2010, a self-reinforcing dynamic has
been set in motion in the department-store channel that is
causing RFID adoption to snowball. Several brands that, up
until now, have only been tagging for Macy’s, J.C. Penney
and/or Walmart have reached the point at which it is more economical for them to tag entire product lines — even merchandise destined for retailers that have yet to require RFID tagging.
Several retailers that fall into this latter category have been
approached by suppliers seeking clarity regarding the timing of
their RFID programs, especially suppliers of denim, intimates
and other basic apparel. It will be increasingly difficult for a
retailer to simply trot out the standard reply — “RFID is something we’re considering”— when its competitors are marching
forward with detailed rollout plans.
Then there is the question of cost. Retailers that are slow to
adopt RFID might not like the idea of paying for a tag that they
have not requested, but it seems likely that many brands that
elect to tag full product lines will start to lump the cost of tagging into their overall product costs. This won’t happen
overnight. It might take a few years to play out. Retailers with
comparatively weak bargaining power will have difficulty
avoiding these added costs.
BY THE NUMBERS
The percentage of merchandise J.C. Penney
wants RFID tagged by early 2013.
100%
95%-97%
The level of inventory accuracy that
Macy’s Inc. believes it can sustain in its
Macy’s and Bloomingdale’s stores using
RFID. [Most department store retailers struggle to get to
65 percent.]
The percentage of Winner short-lifecycle retailers
who seek visibility into store-level inventory,
according to RSR Research’s July 2012 report
Executing on the Promise: Retail Fulfillment 2012. [90
percent of replenishment retailers in RSR’s Winner
category seek this visibility too.]
89%
The percentage by which the revenue growth rate
in RFID-enabled categories in Macy’s Inc.’s trial
stores exceeded the revenue growth rate in
control stores. [Non-RFID categories in the trial stores
underperformed the control stores’ growth rate by 35
percent.]
50%
The percentage of suppliers, in a survey
conducted for the VICS Item-Level RFID Initiative,
who indicated that they had tagged merchandise
for at least seven retailers. [40 percent have done so with
at least three retailers.]
13%
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An Apparel Exclusive Report
The second wave of department-store rollouts will help push
even more brands past their internal tipping points, plus it will
hasten the industry’s progression beyond replenishment categories into fashion and seasonal merchandise categories. What
has quickly emerged, in less than two years, is a critical mass of
tagged merchandise and participating retailers and suppliers.
Spillover Effect Beyond Department Stores
The level of activity by specialty retailers reached an all-time
high in 2012, and there is good reason to believe that the number of RFID-implemented stores will rise dramatically in 2013.
In part this is due to the organic growth of these retailers’ pilot
programs. Yet we also believe that the announcements by
Macy’s Inc. and J.C. Penney have had, and will continue to
have, a significant spillover effect. After all, if department store
retailers with Average Unit Retail figures in the $15 neighborhood can execute chain-wide rollouts, then most specialty
retailers should be able to, too. They typically have higher
prices, smaller stores and much greater influence over their
suppliers. Plus, they have the opportunity to derive value from
the tag at more points along the supply chain.
The big box athletic retailers will gradually be impacted by
the Macy’s and J.C. Penney rollouts, because many of the
apparel and footwear brands they carry are sold in department stores too.
Finally, let’s not forget that many of the brands found in
department stores are also sold by the brands themselves in
their company-owned shops. When brands make their decisions to tag entire product lines they will also account for
opportunities to operate their own stores and websites with the
benefit of enhanced inventory visibility.
Loss Prevention Puts Added Wind in RFID’s Sails
With each passing year we draw closer to the era of “intelligent” loss prevention. Loss prevention executives increasingly
recognize the benefits associated with enhanced inventory vis-
Not All Revenue Is Created Equal
A sales lift of 10 percent does not mean that 10 percent more units were sold. Sometimes it’s true. Usually it isn’t.
When retailers credit RFID with boosting revenue, they usually do not distinguish between the two types of extra revenue that
RFID helps create. The first type comes from selling a greater percentage of your merchandise at full price (or closer to full
price) — in other words, yielding more revenue on your initial unit volumes. Every penny of this kind of revenue is pure profit.
The second type comes from selling more merchandise. While this type of extra revenue is welcome too, there are costs
associated with purchasing, shipping and selling more units.
The charts below illustrate this point. In each case an additional $5,000 of revenue is generated, but the amount of profit
generated in Scenario No. 1 is double what is generated in Scenario No. 2.
Scenario #1: Increased Full Price Sell-Through
1,000 sweaters available
List Price = $100
Cost = $50
Scenario #2: Increased Unit Sales
Without RFID
Without RFID
Units Sold
700
150
150
1,000
Selling Price
$100
$80
$60
Revenue
$70,000
$12,000
$9,000
$91,000
With RFID Inventory Management
Units Sold
850
100
50
1,000
Selling Price
$100
$80
$60
Revenue
$85,000
$8,000
$3,000
$96,000
Incremental Revenue = $5,000
Incremental Cost = $0
Incremental Profit = $5,000
8 PUMPING UP THE VOLUME: RFID IN THE APPAREL INDUSTRY
1,000 sweaters initially available
plus 50 extra sweaters ordered and sold
List Price = $100
Cost = $50
Units Sold
700
150
150
1,000
Selling Price
$100
$80
$60
Revenue
$70,000
$12,000
$9,000
$91,000
With RFID Inventory Management
Units Sold
750
150
150
1,050
Selling Price
$100
$80
$60
Incremental Revenue = $5,000
Incremental Cost = $2,500
Incremental Profit = $2,500
Revenue
$75,000
$12,000
$9,000
$96,000
An Apparel Exclusive Report
ibility and product serialization, and want to link this to other
tools in their toolbox, such as video surveillance and analytics.
They are excited about the possibility of leveraging RFID to
reduce theft by shoplifters and employees. And for good reason. One specialty apparel retailer recently reported a 55 percent reduction in shrink using RFID, with some of its stores
seeing a 75 percent improvement.
The majority of loss prevention executives would prefer to
use a single tag and are keen on embedding RFID chips inside
their current anti-theft tag carriers. (Sew-in labels and encased
plastic security tags are the two common carriers.) These professionals recognize too that they will now have visibility into
other merchandise categories — which will be tagged with
paper tickets or stickers — where anti-theft tags have traditionally seen much less use.
RFID in the department-store channel has been able to take
flight without much emphasis on the loss-prevention benefits
that will accrue. We believe that loss prevention executives will
play a more central role in accelerating adoption by specialty
apparel and big box athletic retailers in the next two years.
store shoppers. Who knows what else they might purchase
once they visit the store?
In-store pickup programs are today a grossly untapped
opportunity to generate foot traffic and capture market share.
RFID is even more critical to the success of in-store pickup programs than it is to the success of ship-from-store programs. In
addition to the efficiencies mentioned above, with in-store
pickup, the timeframes for locating merchandise become even
tighter, especially when a shopper makes that purchase based
on real-time inventory information fed to her on her smartphone. The stakes are clearly much higher. When experts speak
of the revolution in retail that is currently underway, these are
the types of consumer interactions they are referring to.
RFID also has relevance to other customers present in your
stores, even ones who weren’t drawn by a specific promise of
product availability. Here is a good example. Many retailers
look to “save the sale” by offering free shipping on orders
placed from in-store kiosks. RFID can help minimize instances
where the item being ordered is actually in stock in the very
store where the customer is shopping.
The Amazon Effect
RFID Light: Tastes Great. Less Filling.
Best Buy isn’t the only retailer threatened by Amazon. Many
clothing retailers face erosion of market share too, even department stores with large assortments of private-brand and exclusive-brand merchandise that Amazon doesn’t carry.
Amazon is raising the stakes and investing heavily in capabilities that will allow it to get purchases in a shopper’s hands
more quickly than ever — even later that same day. Now that
Amazon has agreed to collect sales taxes it can legally set up
warehouses in proximity to many of the nation’s largest markets. That factor, coupled with the proliferation of its selfservice pickup lockers, makes this more than a pipe dream.
Competition from Amazon is motivating apparel retailers to
enhance their fulfillment capabilities by leveraging their instore inventories and shipping from stores. Earlier this year,
Macy’s Inc. announced it was designating 292 Macy’s stores as
fulfillment stores. (Read “Macy’s Omni-Channel Strategy on
the Move” in the July issue of Apparel for more on that story.)
Other major chains are expected to follow suit.
RFID is foundational to the success of ship-from-store programs. In addition to providing a much truer picture of actual
on-hand inventory positions, RFID can shave the time it takes
employees to locate products within the four walls of the store.
There are two wins there. First, there is heightened labor productivity and potential labor savings. Second, the sooner an
item is retrieved, the sooner it can be wrapped up and shipped
off. And every second counts in this emerging retail landscape.
The second way that brick-and-mortar retailers can
counter Amazon is by offering in-store pickup. Shoppers who
might have hesitated to visit a store for a specific purchase
might now choose to do so if they know their purchase will
be waiting for them. This is especially true for department-
A noticeable trend has emerged in the marketplace that is
worth mentioning. Several companies have elected to get their
first taste of RFID by implementing simple point solutions that
happen to use RFID, rather than adopting the type of complete
inventory management solutions that Macy’s Inc. and J.C.
Penney are using.
We sometimes refer to these point solutions as RFID Light.
Three immediately come to mind:
4 Display Execution: This solution has proved to be incredibly
popular in footwear departments. The display shoe is tagged
in the stock room before being placed on the floor. The rest
of the inventory remains untagged. Each day the store conducts a quick cycle count of its sales floor. The results are
bounced off of the store’s master inventory system, producing an updated list of unrepresented styles. The solution has
value in any instance where a floor sample is displayed and
the remaining units are kept in back stock. Handbags are
another good example.
4 Sample Tracking: Many companies struggle to track and
locate the thousands of samples they create each year. Not
only is it a challenge to find these samples within the four
walls of a building, these samples are typically handled by
many different people, often on multiple continents.
4 Inventory Control: Display cases containing high-value
items such as fine jewelry or consumer electronics are usually counted daily. RFID has proven to be useful in expediting these counts, reducing the labor dollars spent controlling
this merchandise.
Just to be clear, we do not think these RFID Light point solutions are a bad thing. After all, the goal is to solve operational
problems and create value. But chain-wide rollouts of these
10 PUMPING UP THE VOLUME: RFID IN THE APPAREL INDUSTRY
An Apparel Exclusive Report
solutions (such as Lord & Taylor’s rollout of the display execution solution to its footwear departments) do not meet our definition of a “chain-wide rollout of RFID.”
RFID and Mobile Payments
With all the buzz about mobile payment, many people want
to better understand its place in the RFID universe.
NFC (Near Field Communication) is certainly a member of
the RFID family. It has gained popularity in recent years, being
used for mobile payment and interactive marketing. NFC limits the range of communication to within four inches (10 centimeters) to allow for more personal and controlled interaction.
NFC is a distant cousin to EPC-based RFID in the UHF spectrum, the technology commonly referred to when people discuss
retail inventory management applications. UHF EPC-based RFID
has a read range of more than 15 feet (5 meters) and enables rapid
and massive data collection in a retail environment.
Even though UHF EPC and NFC both use radio waves to
communicate their ID, they are truly very different and incompatible technologies. UHF-enabled RFID handheld readers
cannot read NFC-enabled tags, and NFC readers cannot read
UHF EPC-based RFID tags. But don’t be surprised if multi-protocol readers begin appearing on the market that have the ability to read both types of tags.
Predictions For 2013
1. 2013 will be the “Year of the Specialty Retailer,” with a
noticeable proliferation of specialty retail implementations.
2. At least three more North American department-store chains
will announce chain-wide rollouts of RFID.
3. The first significant activity by big-box athletic retailers will
materialize.
4. Next-generation store infrastructure solutions (“Hands Free
RFID”) will continue to struggle to gain a foothold in retail.
5. Sew-In tags and encased plastic anti-theft tags will each see
greater usage as RFID carriers.
Moving Forward
As mentioned earlier, the apparel industry is now in the
HOW stage of RFID adoption. The leading retailers, the brands
that supply them, the logistics providers and the production
houses must all gradually adapt their operations to account for,
and capitalize on, the proliferation of RFID.
At point of origin, this will entail enhancements to outbound quality control to effortlessly confirm that cartons are
packed accurately. In distribution facilities, there will be modifications to systems and processes to increase the amount of
automated data capture. Operators of distribution centers must
also develop their own redundant tagging capabilities to
account for instances where a supplier has failed to tag merchandise as directed.
Within retail stores the need for guidance remains great. The
majority of today’s implementations rely heavily on store labor
to cycle count inventory using handheld readers. The holy grail
of Hands Free RFID, which takes labor out of the equation and
provides an instant inventory snapshot, is still too far out on the
horizon. Retailers are looking for ways to automate data capture through the incremental addition of current-generation
hardware, but they need guidance on how to invest judiciously.
Retailers need good visibility into the quality of execution at
the store level in order to effectively manage their RFID programs and maximize ROI. This extends beyond merely monitoring whether employees are cycle counting and stocking the
sales floor effectively — which is no small feat when you have
hundreds of stores in your chain. A strong focus on process
excellence is essential, especially for retailers looking to transform the shopping experience and delight their customers.
The apparel industry is at an exciting juncture. Retail has
evolved dramatically over the past five years. Accurate inventory data is now viewed as table stakes by today’s leading retailers, making RFID essential. The chain-wide rollouts at Macy’s,
Bloomingdale’s and J.C. Penney send a clear signal that the next
chapter in the RFID story has just begun. n
ABOUT THE AUTHORS
JOHN-PIERRE KAMEL is a Principal at retail
consultancy RFID Sherpas LLC, a consulting
practice devoted to the profitable application
of wireless and mobility technologies.
A recognized leader in the Canadian and U.S.
RFID communities, he brings over 12 years of
enterprise strategy and solutions integration
experience. Prior to joining the firm John-Pierre led the RFID
practices of VeriSign and Bell Canada, where he was responsible
for all RFID sales, marketing and delivery activities. Earlier in his
career, John-Pierre was the Canadian Lead for the Mobility
Solutions Practice of Capgemini (formerly Cap Gemini Ernst and
Young), where he led projects in mobile strategy and business
development for many of North America’s largest organizations.
MARSHALL KAY is a Principal at retail
consultancy RFID Sherpas LLC. Serving an
international client base, the company provides a
range of services to retailers and suppliers,
including strategy consulting, business case
analysis, planning, solution architecture, vendor
selection and project management. Marshall
also advises technology vendors, investors and industry
associations. Prior to launching this practice in 2007, he directed
the North American RFID program of retail consulting firm Kurt
Salmon Associates. During the course of his career Marshall has
advised the Presidents of several leading apparel companies.
Copyright© 2012 by Edgell Communications Inc.
All rights reserved.
12 PUMPING UP THE VOLUME: RFID IN THE APPAREL INDUSTRY