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RFID: the cure for retail omni-channel failures

With the holidays behind us, it’s evident retailers have some work to do when it comes to implementing omni-channel strategies that include buy-online, pick up at store.

Bill Hardgrave, Dean and Professor of the Herbert College of Business at Auburn University, says that about 60 percent of retailers allowed customers to buy online and pick up their purchases at a store. Just over one-third of all online shoppers opted to do so at least once over the holidays.

Changes to inventory management to support omni-channel strategies, including deploying RFID, have enabled Macy’s to reduce $1 billion of inventory from its stores.

“Fifty-percent of those purchases were considered a failure,” says Hardgrave. “Either the product wasn’t right or the wait time was too long. These are staggeringly bad numbers, and retailers can’t continue to operate in this way. They were sending customers to stores without really knowing what inventory they have.”

RFID is the tool to fix the problem. Even as many retailers embrace RFID for enhanced consumer engagement, inventory accuracy remains the number one business case.

Hardgrave says that about 50 percent of the top 100 apparel retailers in the U.S. are engaged with RFID. Half of them are deploying chainwide rollouts, about 30 percent are in extended pilots, while another 20 percent are in the proof-of-concept stage.

Part of the problem for many retailers is a lack visibility to the single unit, or knowing exactly how many items remain of a certain SKU. Typically, retailers don’t expose the last item of a SKU to online purchasing because they don’t have enough confidence in their inventory accuracy or the ability to find the item to make every unit available for customer orders.

“Think about it as a local inventory that becomes global inventory,” says Hardgrave. “You want to be able to expose your inventory so anybody can buy it. But because retailers don’t know what they have in the store, they hide that inventory from customers because they are unsure of how many they have.”

Hardgrave says that by improving inventory visibility to 95 percent, one retailer was able to double the number of items they sold online without carrying any additional product.

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Macy’s has been concentrating on visibility to the last item for more than a year. “About 15 to 20 percent of inventory is accounted for by the last unit in the store,” says Peter Longo, president of logistics and operations at Macy’s. “It’s a massive amount of budget, either marked down or not sold, and it is curable through RFID.”

This week Macy’s took further action to advance its “Pick to the Last Unit” (P2LU) program for omni-channel order fulfillment by deploying Tyco’s TrueVUE RFID Inventory Visibility platform. The retailer understands that brick-and-mortar stores can be their greatest asset for single unit orders, essentially functioning as robust and flexible “warehouses” to utilize the full assortment of owned inventory. With item-level RFID, Macy’s can focus on product assortment and service while using existing inventory to address fulfillment demands. Changes to inventory management supporting this omni-channel strategy have enabled Macy’s to reduce $1 billion of inventory from its stores.

Furthering that effort, Macy’s launched its unique P2LU program for omni-channel fulfillment. P2LU attempts to ensure that the last unit of an item in any store is made available for sale and easily located for order fulfillment.

Using Tyco’s RFID inventory solution, Macy’s conducted a P2LU pilot project with women’s dresses that yielded impressive results. Fulfillment sales for pilot stores were up significantly compared to last year. Markdowns for pilot stores also showed an improved trend versus other stores. Macy’s now has confidence to fulfill customer demand even if only one of an item is left in stock.

By leveraging single unit inventory, Macy’s can drive sales and margin. In addition to sales lift on regular and first markdowns, the retailer is reducing inventory costs by lowering interim inventory requirements by one-third.

“Macy’s is a great example of how item-level RFID bolsters inventory optimization and opens up a world of possibilities for omni-channel fulfillment success,” says Nancy Chisholm, president of Tyco Retail Solutions.

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