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Guest blog: RFID in apparel soars to new heights

This week’s guest blog from Per H. Levin, President and Chief Sales Officer, Shrink Management Solutions and Merchandise Visibility Solutions, Checkpoint Systems, examines why RFID in the retail apparel sector is finally soaring to new heights and why many experts believe that the apparel industry is now poised to become RFID’s growth engine in 2012 and beyond.

For more than a decade, RFID in apparel has been like the bright child in the classroom with seemingly endless potential but who never fully managed to meet expectations. Despite flashes of brilliance and occasionally impressive accomplishments – tempered by economic realities of relatively high tag costs and the weakened global economy – RFID, until recently, had yet to achieve the level of results across the board that has long been hoped for. But that’s changing – dramatically.

Per H. Levin, of Checkpoint Systems

Installations of RFID solutions are rapidly accelerating; research firm VDC Research Group recently predicted that global revenues for RFID solutions would reach $8 billion (6.2 billion euros) by 2013 – a compound annual growth rate of more than 20 percent from 2010. According to VDC and other market-watchers, an important contributing factor is that the technology’s business benefits are becoming more and more readily apparent across a variety of vertical markets.

In fact, when it comes to the apparel industry, it appears that the key question about RFID adoption no longer is “if ” or even “when” to adopt RFID, but more appropriately “how fast do we need to go?” Independent third-party data, combined with some dramatic public statements, are painting an optimistic and vibrant picture of apparel’s role at the heart of expanded RFID adoption in the near term. These key trends fueling the apparel industry’s growing support for RFID include:

• Steadily declining prices for RFID tags, particularly for passive UHF tags that enjoy a performance-range advantage over existing technology.

• Apparel retailers’ ongoing desire to keep physical inventory as low as possible, putting more pressure than ever on them to have maximum visibility into merchandise levels and location.

• A growing library of third-party validation as to the financial viability, measured in return on investment (ROI), of RFID for apparel goods.

• A dramatic increase in RFID adoption plans among leading global and regional retailers, which has created a much stronger sense of comfort and confidence by the apparel industry in RFID, and a competitive advantage for retailers.

• The ability to integrate RFID into traditional apparel labels, essentially transforming apparel tags into robust, multifunction carriers of such essential information as merchandise status and location, variable data management and loss prevention.

Of course, a simple but important factor in the apparel industry’s increased interest in RFID centers on the technical intersection between the technology and the goods themselves. “Garments are very RFID-friendly,” pointed out Joe Andraski, chief executive officer of the Voluntary Interindustry Commerce Solutions (VICS) group. “There are no fluids, nor are they materials like iron which can present a challenge for RFID readers. Materials used in clothing lend themselves well to RFID technology.”

But perhaps the single most important driver in the apparel industry’s growing support for RFID as the rapidly crystallizing belief that big economic benefits await apparel retailers and brand-owners who get behind item-level RFID, considered the “holy grail” of merchandise visibility for the apparel industry.

“Item-level RFID is becoming a competitive differentiator for several leading companies in the retail supply chain,” noted a recent report from global business consulting leader Accenture Inc. “Chain-wide rollouts by a number of North America’s largest clothing retailers are a clear sign that this technology will soon be broadly adopted by the industry.”

The key benefit of item-level RFID, noted the recent study by Accenture, is increased inventory visibility. This finding in the Accenture study was consistent among both retailers and brand owners, all of which are looking for more ways to cut out-of-stocks, reduce working capital and improve operational efficiency.

Apparel is a merchandise segment that lends itself well to these goals because it’s an industry with such unique characteristics as very high numbers of SKUs, rapidly changing consumer tastes and frequent seasonal changes in merchandise mix. Additionally, apparel is at or near the top of the list of most-targeted merchandise for retail theft, according to the Global Retail Theft Barometer, an annual report detailing trends in global shrink.

According to Mike Liard, RFID research director for VDC, a growing number of major apparel retailers and brand-owners already either have implemented item-level RFID or have publicly pronounced their intention to do so in the immediate future. With greater frequency, retailers have expressed their intent to roll out the technology across a wide number of their stores, rather than simply on a limited pilot. For instance, late in 2011 Macy’s said it plans to deploy item-level RFID in 850 of their stores.

“In particular, closed-loop apparel retailers have increasingly committed to item-level RFID, since it’s easier for them to control the issues relating both to the tagging of merchandise and to integrating RFID into their store operations,” says Liard. “I was talking with a high-level executive at a ‘Tier 1’ high-fashion retailer, who claimed that their existing barcode-based inventory management system was yielding 95 to 98 percent accuracy. But he said when they did a quick sanity check on accuracy levels for a specific accessory, they discovered that they were only achieving 63 percent accuracy.”

Liard says that the retailer immediately re-evaluated its existing processes and began the steps toward RFID adoption. “They just realized they needed much greater operational efficiency, and that RFID helped them plan better and adapt more easily and quickly to the numerous seasonal merchandise changes,” he says.

Marshall Kay, founder of RFID Sherpas, a retail-oriented consultancy with strong emphasis on RFID solutions, stressed the significance of RFID to the apparel industry in today’s economic climate and with changes in how and where shoppers purchase apparel products. Partial List of

“RFID is more important than ever to apparel, because omni-channel retailing makes it essential that retailers know precisely what they have in stock and where it is,” says Kay. “Today, apparel retailers have to ensure real time alignment with their supply chain, because they can’t afford out-of-stocks, but they also can’t afford to carry more inventory than is necessary, especially with retailers changing their merchandise mix so often.

“In the end, RFID is all about streamlining operations for apparel retailers; they are smoother, quicker and more accurate.”

Another development in the growing adoption of RFID, particularly at the item level, by the apparel industry is the technology’s improved performance related to signal readability. Andraski notes that many of the old perceptions about RFID’s technical limitations are starting to melt away.

“I was at an RFID industry trade show talking with an IT manager from an apparel retailer,” recalled Andraski, “and he said his organization was interested in RFID but was concerned about reports he’d heard about the need to get within 8-9 inches to do an accurate read. When I showed him, right there on the show floor, that it was actually more like 15 feet, he was stunned to realize that his information wasn’t up to date.”

Frost & Sullivan says that the RFID apparel market will be worth $1.47B in 2017.

Another impediment some retailers and brand-owners have had to address about RFID has nothing to do with technology, but more with the concept of organizational change management.

“Culture is still the single biggest roadblock to instituting new technology, because new technology such as RFID often brings with it changes in business processes,” he said. “It infects all levels of an organization, often down to the warehouse staff. Once they feel they can trust the technology to work as advertised and not to adversely affect how they work, acceptance rates immediately turn up.”

Of course, a huge component in any organization’s decision about how, when and where to implement RFID is analyzing and verifying the financial benefits. Accenture’s study on item-level RFID provided a helpful roadmap about where and when ROI occurs, taking into account RFID tag price points, average gross margin dollars of the unit being tagged, and the necessary sales lift in order to break even. Accenture’s data pointed out that, as total variable tag costs for RFID labels have dropped, so have the incremental sales required in order to justify the investment.

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