Inventory tracking is the most well-understood and widely used RFID application in retail. Accurate product-location information can lower the cost and complexity of managing inventory, speed picking, and packing and delivery and can boost customer satisfaction. Therefore, tracking should be the starting point for many retailers, with the important benefit of unit-level tagging that lays the foundation for other use cases.
An example of more accurate product-location information
Out of the box, RFID can provide highly accurate information about where an item is in the supply chain, such as on a truck or in a specific store, and where to find it in the store. This helps store managers plan and adjust staffing based on quantities and the timing of truck arrivals and improve pick timing for online orders, store replenishment, and customer requests. While RFID can also provide microlocation information at the shelf level, this typically requires larger investments that may not pay off except in high-volume or high-value environments.
Out of the box, RFID can provide highly accurate information about where an item is in the supply chain, such as on a truck or in a specific store, and where to find it in the store.
Athletic-apparel retailer lululemon athletica uses product-location information to deliver a more flexible, omnichannel fulfillment model. The retailer uses RFID tags throughout its network of nearly 500 stores and boasts a resulting 98 percent inventory accuracy and a payback period of one year or less. During the COVID-19 pandemic, lululemon used this location information to manage inventory levels as customer demands shifted. CEO Calvin McDonald explained that by using RFID, “we can access product at any point across our network, not just distribution centers but at our stores as well [as] from ship from store.”
Some retailers are better positioned to capitalize on these capabilities more quickly than others. Those who have benefited most from inventory are either vertically integrated, which smooths the path to upstream product tagging, or predominantly sell soft goods, such as apparel, that offer the most favorable physical characteristics for RFID tags. We believe broad expansion to multibranded and mixed retailers is possible and well within reach—but successful implementation in these formats requires even closer collaboration and creativity among retailers, product manufacturers, RFID experts, and integrators.
Once products are RFID tagged, retailers should pursue additional use cases in stores to boost cost savings, productivity, and revenue. New operational use cases are keys to more efficient store processes that better meet customer needs and shift associate priorities as omnichannel’s role and margin structure evolve.
An example of efficient and accurate checkout
Shoppers are increasingly willing to scan universal product codes (UPC) in self-checkout systems, and RFID tags can make self-checkout even faster and more accurate. Decathlon, a sports-equipment retailer with over 1,600 stores in more than 50 countries, tags more than 85.0 percent of items, tripling labor productivity and cutting stockouts to raise revenue by 2.5 percent. The retailer is also testing several RFID-based checkout solutions. For example, its scan-and-go solution in Europe allows shoppers to scan and pay for items with their smartphones, automatically disabling RFID tags and avoiding checkout lines altogether. In an era of physical distancing, helping shoppers avoid close contact with checkout staff could be a competitive advantage.
Checkout’s not-so-distant cousin—the return—is becoming a more important ingredient in customer satisfaction. With e-commerce activity on the rise and about 20 percent of orders being returned, quick, accurate, and efficient processing, which includes a return in the salable-inventory pool, reduces costly margin erosion on items otherwise lost in the reverse supply chain.
While the most valuable RFID use cases today are in inventory tracking and store operations, several “last mile” advances can attract customers looking for dynamic new experiences, drive revenue, and yield valuable behavioral insights.
An example of customer-centric digital activations
RFID-enabled activation can take a variety of forms. Some retailers now provide “smart” fitting rooms, where shoppers get customized information about other sizes and colors in stock, learn how to style a garment, and receive personalized recommendations for items that will complete a look. Chanel’s collaboration with Farfetch does exactly that. The high-tech, RFID-enabled fitting rooms take the shopper on a digital journey of new styles, product details, and the Chanel lifestyle all without leaving the room. In return, retailers can gather high-level data, such as how many items customers try on and conversion and abandon rates by product.
Other retailers use RFID to trigger experiences for customers and provide them with information. For example, Kendra Scott trialed an RFID-enabled activation in its Color Bar in stores. Customers could select jewels from a display to trigger a customization experience. Engagement doubled and customers relied more on self service, which will likely become more important.
The retail value chain depends on the many players who move products from their point of manufacture to their final destinations: in customers’ hands. No single actor in that chain can dictate which RFID systems will be adopted or how they will be used across the ecosystem. Collaboration among the following leaders throughout the industry will be required for smooth, successful implementation: retailers, factories and manufacturers, integrators, and device and technology providers—a group that can fittingly be abbreviated as R-F-I-D.
Retailers worldwide are struggling with slowdowns, lockdowns, and sharp declines in consumer confidence and spending power, even as next-gen products proliferate and tech vendors clamor for attention.
While RFID holds the potential to tremendously impact a retailer’s profit and loss and alleviate pressure in our current environment, capturing the value can be complex. Success goes far beyond technological expertise and reaches into functions across the entire retail business.
To ensure success, retailers will need to take the following actions:
In today’s retail environment, RFID’s applications have never been more important. With lowering costs, the technology is also now more accessible than before. However, implementing RFID is not for the faint of heart, and requires a clear focus on the use case at hand as well as a commitment to making the cross-functional changes required for success.
Praveen Adhi is a partner in McKinsey’s Chicago office, where Gerry Hough is an associate partner; Tyler Harris is an associate partner in the New Jersey office.