News & Events

RFID and Omni-Channel Retailing

July 30, 2014

The biggest advantage of omni-channel retailing is also its biggest challenge: while consumers want to use all channels simultaneously, retailers have to be able to fulfill orders accurately from all of them.

And it isn’t just that consumers want to use all channels for purchases. Their expectations include being able to buying in one channel and returning in another; they want to be able to trust what they’re told, e.g. “The item is available for shipping immediately, it will be delivered on Tuesday and you’ll receive size 6 in red.”

That shouldn’t come as a surprise. According to “New Retail Democracy Research,” which was commissioned by Oracle, more than 50% of shoppers say the availability of goods is more important than price. In addition, if a product is not available, 88% will either go online or try another retailer. And more than 50% say accurate availability information is “key to a better shopping experience.”

For retailers, this presents some challenges: Making important choices about where to hold inventory, the inventory mix (assortment, SKU optimization), the location from which to ship (closest store, DC, etc.) to maximize margins, prioritizing customers by in-store vs. online, and others, depending on the retailer’s priority.
According to a recent RSR report, while retailers recognize the importance of gaining better visibility into in-store inventory, they acknowledge that they are not doing a very good job achieving it. In fact, 77% of retailers consider it “very valuable,” while only 37% report that they have or are in the process of getting online visibility to in-store inventory. Similarly, retailers recognize the importance of being able to use store inventory for consumer pick-up in the store, yet they largely don’t have the capability. Some 74% of retailers consider it “very valuable,” but only 36% report that they have or are in the process of implementing in-store inventory pick for consumer in-store pick-up.

And while a Forrester report noted that baseline functionality for omni-channel retailing includes store pickup, cross-channel inventory visibility, store-based fulfillment and endless aisle (in-store) ordering, a recent RIS store systems study revealed that more than 80% of retailers lacked accurate inventory to store associates, accurate inventory to customers, integrated inventory systems and actionable business intelligence.

So what’s an omni-channel retailer to do?

RFID or not?

Some retailers are approaching omni-channel retailing without RFID. But for this approach, retailers must spend lots of money to achieve near-perfect inventory accuracy, which typically involves increasing labor resources. Or, they must have plenty of product on hand, which means incurring substantial inventory carrying costs. Either way, margins erode as the cost of operations goes up and, eventually, retailers must increase prices, accept lower margins or abandon the omni-channel option.

Others, after having studied the problem, have concluded that RFID is essential for successful omni¬channel retailing effort. It plays a key role in retailers knowing what they have and where inventory is at any given time. Accurate insight into inventory, then, is the key, and RFID and other sensor technologies (IOT, NFC) are the best way to achieve that.

Using RFID, retailers can know when stock comes into stores and when it is on shelves for purchases. For catalogue, phone and online orders, RFID can enable more “complete order fulfillments” and shipping from the closest store both to reduce the time and costs associated with shipping. In part, this is because better insight into actual inventory can slash the “inventory buffer” retailers typically use to ensure they really have items available for sale, from eight or even 10 of each size/color/style down to two or three.

Beyond this there are several other side benefits that have tremendous impact of costs and sales. Finding more of what they want from retailers and receiving it faster boosts customer satisfaction and loyalty. This can result in both increased sales and reduced inventory costs. Studies have shown that for every one item found, consumers typically shop for three or four complementary items.

Knowing what you have and where you have it also enables retailers to better understand customer preferences, like where they prefer to show and how they shop. This enables them to better optimize inventory by store location and region. All of this adds up to reduced capital costs, by reducing the capital tied up in inventory, and increased sales.

Even without omni-channel retailing, RFID can have a tremendous impact on knowing merchandise availability. But because inventory accuracy is the foundation for omni-channel retailing, RFID can be the key enabler for omni-channel success.