Benefits are There but Vary by Category, Panelists Say, and Deployment in DCs not in Near Term Future, Target, Levi's and Lululemon Execs Seem to Agree

Really since Walmart announced its ultimately failed RFID mandate, it has been generally been difficult to get straight talk about the technology and its adoption due to much hype from the RFID system vendor community – and in some cases adopters of the technology themselves,

So it was refreshing to see the Platt Retail Institute (PRI), which according to its web site is an international consulting and research firm that focuses on the use of technology to impact the customer experience, conduct a very balanced interview with three retailers who were very realistic about RFID adoption, benefits and challenges.

Supply Chain Digest Says... Bracken said that making the business case for in-store RFID is made challenging because it often in part includes estimates for increased sales as a result of RFID. What do you say? Click here to send us your comments Click here to see reader feedback

The three retail panelists were:

• Karl Bracken, senior vice president, supply chain transformation, Target

• Rene Saroukhanoff, senior director, global merchandise planning, reporting & analytics, Levi Strauss

• Allan Smith, former senior vice president and CIO, Lululemon

Below, we provide some highlights of the discussion, moderated by PRI's Steven Platt:

In terms of a catalyst, Target's Bracken said: "Our interest in RFID initially was in ensuring that we could have more accurate count integrity of our inventory throughout our network. You can imagine that in a big box retail store with 85,000 items in each store, count integrity can be quite challenging, particularly when you're turning inventory quickly. That's especially true in categories where you have product that gets misplaced, broken, or stolen."

But, he said, as they analyzed that business case and ultimately deployed RFID in-store, other benefits were identified. For example, using RFID greatly enhanced Target's ability to pick product quickly for ship-from-store and pick up-instore offerings.

"In our store, on our sales floor, it has been very useful to use the Geiger counter functionality on the RFID readers to find apparel, for instance, to speed up the pick, pack, and then shipping that product directly to consumers," Bracken noted.

Smith, formerly of Lululemon, said the goal was always to tag all SKUs sold at the apparel chain: "The target always was to move that model throughout the entire fleet – all categories, all stores. For all intents and purposes, it's fully rolled out with the exception of a few international stores."

He added that "After we had implemented it and gotten the benefits of the in-store operational improvement back to front, the whole omnichannel business case came front and center. We were able to start to move on a strategy of driving ship from-store and pick up-in-store, and really get to a position where we had systemic visibility across all our stores and ecommerce to know exactly what was in-store and online."

To achieve Lululemon's goals for omnichannel fulfillment rates and to drive a best in class customer experience, Smith said RFID was required to support the very high inventory accuracy that was at the foundation of that service.

However, he noted that since Lululemon is vertically integrated, meaning it sells only its own private label products, the rollout was probably much easier than it would be dealing with hundreds or thousands of different independent vendors.

Bracken said Target wanted to tag broadly across merchandise categories, but found it was trickier than they at first thought.

"We had originally planned on wanting to scale this more broadly across other categories throughout our store. That's still our goal - to extend it further - but one of the hurdles we've been working through is determining where it makes sense on a category-by-category basis to use RFID," Bracken said. "Where do you run into physical limitations with the tags not working? For instance, if you were to put it on bottles of water, reading an RFID tag through water doesn't work very well. Or items that contain metal and sit directly on a metal shelf; it doesn't work very well there either."

The bottom line, Bracken said, is that for Target the RFID ROI is different across product categories, of which Target has many.

He added that technology progress is also key to ROI, saying that "We've been monitoring for years is when do you get to the point where the tag cost has come down enough and the reader technology is advanced enough and cost-effective enough that mass implementation will lead to a positive ROI. We feel like we're there now, but initially we had been looking at readers in the ceilings of stores and things like that, which are going to be far more expensive and not as effective."

Overall though, using handheld scanners and falling lower tag costs have definitely helped to make the RFID ROI analysis a lot stronger, Bracken observed.

He cited examples of categories where the RFID business case is difficult, such as in cosmetics. Even though this is a category that tends to have inventory accuracy issues, it is a challenge to use RFID because of the physical nature of the product and thus how to get the tags onto the product in a way that makes sense.

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"And then, how do you scan effectively and count everything, with so many small items, in our case, in a 24-foot planogram. That can prove to be a challenge," Bracken added. He cited electronics as another challenging category, due to low read rates.

Levi's Saroukhanoff said the iconic brand is still just piloting RFID in a few of its own retail stores. But it will be a big leap from there into a full rollout, he said.

"How do you translate something that you're doing in a proof of concept in a store and scale that out on a larger level?" Saroukhanoff said, adding that "There are impacts to business process. There's employee training. Anytime you're touching store operations, it becomes a bit of a big deal."

He noted, for example, that one of the Levi's pilot stores is on the bottom floor of its headquarters building, "So it's easy to pop down there and check in and see what's going on. As you try to scale that out to greater and greater numbers, you start running into different challenges."

He also noted that even with RFID, there are inventory count issues.

"Obviously any time you're counting inventory, while RFID does help improve that accuracy, you are still getting into issues of, how do I know what I just counted was right?" Saroukhanoff asked.

Smith, however, said the inventory accuracy benefits of RFID don't only apply to store operations.

"The upstream accuracy that you get from just reducing the inaccuracies in systems and the flow of data back to your allocation and replenishment" can also drive big benefits, Smith noted.

Bracken said that making the business case for in-store RFID is made challenging because it often in part includes estimates for increased sales as a result of RFID.

"Obviously, a big part of it [the ROI] is the right product in the right place at the right time, and ensuring that products are in stock when they need to be in stock," Bracken added. "We were looking at better count integrity. You should be able to streamline how much inventory you are carrying and where you are carrying it, to get the same or better level of in-stocks. For us, that was a big component of it."

Are any of these companies looking to drive RFID back upstream into distribution centers and ultimately into the supply chain? The panel largely agreed there is some general interest, but it is a ways off.

Saroukhanoff, for example, noted that "Right now, our pilots have been primarily focused on really getting it right within the store and obviously, selling it to our customers. In terms of integration, we haven't explored that a lot but there are obvious use cases for being able to track your inventory through the entire chain, from the factory down through the pipeline into our warehouse."

He said in the future, Levi's may be cross-docking a shipment through a customer's DC to their stores. Just knowing where the inventory is along the chain is going to help improve Levi's ability to inform a consumer of when and where they will be able to purchase that product and help get it to them on time.

Smith, similarly, said Lululemon's priority was really to focus on operations within the four walls of the store.

While the company looked at the potential for RFID in its DCs, "When we started establishing priorities, we found that what really causes the inaccuracy at the end of the day is the human touch points with product. In the store is where that happens the most. As you move up the supply chain, there are fewer touches to your individual products. It's more case and pallet level. That's part of the exploration – there are opportunities, but probably not the same as there are in just getting your store lined up to improve accuracy."

That is an interesting perspective.

Bracken also noted that "Doing a full-scale move toward RFID tagging with our vendor base is going to take a while. Directionally, it's the ability for us to see inventory further upstream and have a sense of where it is would be beneficial over time."

Bracken concluded by noting that the RFID business case is "a little bit of art and science." However, "the widely reported-on count integrity benefits of RFID are legitimate, based on what we've seen."

Saroukhanoff ended with this thought: "Even if it's something that doesn't have benefits that are easily tangible, so you struggle to put a dollar amount against it, as long as it fits into some kind of a strategic goal, that's where to start. From there, you start listing out the questions or the things you're trying to achieve, and that becomes the guiding light."

The full PRI panel discussion can be found here: Insights into Deploying RFID Systems in Retail

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