How Fast is Retail Adopting RFID?
By Dean Frew, CTO and SVP, RFID Solutions, SML RFID — April 28, 2017
If recent news and information about the apparel business and omnichannel retailing are any indication, universal RFID adoption is an industry fait accompli.
Except when it isn’t. Not yet, anyway.
Statistics from retail reporters, industry groups and retailers themselves share RFID usage numbers ranging from 50 percent to 96 percent. In actuality, these numbers are inaccurate, exceedingly optimistic, and obscure the actual realistic pace of RFID adoption, which is far slower and more methodical.
While the aim among retailers to integrate RFID technology into their operations rates is near 100 percent, actual deployment of full RFID systems still hovers in the single digits.
Fully deployed RFID systems — including tags, readers and the supporting software and where retailers are experiencing measurable results and ROI — presently range from only 4 percent to 8 percent.
Why such inaccurate estimates? It comes down to the word “intent.” So many retailers have it in mind to test and install RFID technology. But reality is firmly planted in the present and that goal is significantly different than permanent deployment numbers to date.
And that is where the current statistical confusion of RFID adoption stems from: those actually using the technology versus those who plan to, or are in the preliminary planning stages. For instance, if a large company has a pilot in a single store, that indicates its interest in RFID, but the sheer volume of tagged items is still low.
Beginning to walk
We’re still in the earliest steps of a long race toward mass adoption of RFID systems in retail. Actual apparel market penetration is conservative and considerably less than some reports. GS1, for example, estimates the adoption percentage at more than half, whereas the RFID Lab at Auburn University Retail Study, the retail RFID performance and testing group, puts the installed base closer to four percent.
How did SML come by its dramatically smaller use numbers?
Dissecting the industry
A year and a half ago, we started conducting a deep analysis of the industry to help companies identify where they should focus marketing strategies, as well as planning the geographic location of service bureaus intended to provide encoded tags and what solutions and business requirements were emerging across different segments.
While dissecting public information and mentions of units sold among apparel and footwear retailers (with at least 40 stores located in the U.S. and Europe), we noticed that while tag growth was rising steadily, the number of stores using RFID was still relatively small. That got us curious.
We then examined RFID tag volumes sold by us and other global tag suppliers, which tallied out in 2016 at only a small fraction of the total market of 35 billion to 37 billion tags. Looking at the approximately 200,000 stores in the apparel and footwear market in the U.S. and Europe that will adopt RFID over time, we arrived at the 8 percent penetration rate.
So what does this mean for the industry? Looking ahead, growth is almost assured. SML’s own RFID technology sales have surged 50 percent every year for the past four years, and 2017 is projected to be no different.
Much of that growth results from the pressure of online sales that is prompting retailers to offer omnichannel purchasing for customers who can buy a product from the nearest store, buy online, or purchase online and pick up the product at the nearest store. This omnichannel model requires a highly accurate inventory count in each store.
Fear factors
But there are other factors that have contributed to RFID’s slower than expected acceptance.
First-generation RFID deployment was rocky. Early adopters were in some cases surprised at the cost of the installation when compared against the early benefits. Technology adoption was also hampered in some cases by an inability for companies to align behind its deployment and integration with enterprise data.
Now, system set-up and integration is easier. We’re seeing a shift from where the RFID technology industry as a whole was making RFID too complicated for retailers. Customers want the tech to work, and to use proven technology and solutions. The emphasis is offering solutions that best fit the retailer’s operations, and make pilots and full installations more palatable for the end users and generate proven ROI.
Second, the bigger obstacles revolve around change and how badly a retailer’s leadership believe it needs to.
The “if it’s not broken, why fix it?” attitude stems from comfort and familiarity. We still manage inventory like we have for the past 30 years with SKU (barcodes) vs. Item-Level (RFID) inventory management. The use of RFID technology in retail has demonstrated improvements in inventory accuracy of more than 30 percent (from high sixties to more than 98 percent). It has been proven that, in addition to out of stock and inventory reduction, effective omnichannel can only be executed with this higher level of inventory accuracy.
After a number of deployments, you can get a sense for when a customer’s RFID adoption is going to be successful based on the engagement process with the customer’s steering team. This includes managers of all departments, with the leadership acknowledging unanimously that inventory accuracy has room for improvement.
Just where the RFID investment fits on the company’s priorities list is another issue that can make or break an installation. Apparel and footwear growth is taking place most among brands with their own outlets, and among chains of vertically integrated specialty stores. Department stores, which carry merchandise from a wide variety of brands, are seeing less immediate benefit from RFID deployments.
Yet despite industry tumult, and perhaps because of it, broader acceptance is inevitable. Over the next five years about one third of apparel and footwear retailers will adopt RFID technology because power is now in the hands of consumers. They have a myriad of options in product, cost and delivery. Retailers will have to vault over this ever-rising high bar of shopper expectations to keep and expand their customer bases. It’s up to them on how quickly they want — and need — to change.
Dean Frew is CTO and SVP RFID Solutions for SML Group. He served on executive teams for several supply chain software and RFID solution companies and founded Xterprise in 2002 that was purchased by SML in 2013. He earned a bachelor's of science degree in mechanical engineering from New Mexico State University, and a master's of science degree in industrial systems from Virginia Tech. He also holds multiple patents in electronic packaging and RFID systems, plus pending patents for RFID and inventory and asset systems.
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