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How RFID Is Revolutionizing Retail

There are a number of hot new technologies on the forefront of online and offline retail including machine learning, the Internet of Things (IoT) and Blockchain, the information-sharing technology behind Bitcoin.

We have written a bit lately about machine learning because it perhaps has the highest “world-changing” potential. But the IoT – especially when it comes to radio frequency identification (RFID) – also has huge potential to transform any retail operation.

RFID has been around for many years and has been adopted by a range of retailers including Walmart, Macy’s and Amazon. The way it works is simply that each product is given a radio frequency ID tag and that tag has its own unique magnetic signature. That signature is picked up by a receiver or “RFID reader” that not only records the unique ID, but also the location of the tagged product.

RFID is also the same technology that you see on new tap-and-go credit cards. 

Because the tags are read magnetically, it is a more efficient system than a typical visual scanning system because the tag and the reader do not need to be line-of-site to communicate.  Therefore, the immediate benefit for an RFID-based system is that a typical retailer can reduce the time required to take a typical physical inventory by something like 90 percent.  In other words, if it took 3 days to take an inventory using barcode scanning, that same inventory would take 45 minutes using RFID.

RFID also increases accuracy substantially. Usually manual-scanned physical inventory has a 4 percent inaccuracy rate.  And that number is compounded throughout the year, so cycle counts done throughout the fiscal year can reach more than 60 percent inaccuracy by the holiday selling season.

Conversely, RFID typically has less than a 0.5 percent inaccuracy rate, meaning that inventory is much more accurate throughout the year.

Here are some more innovative uses for RFID:

Adhering To The Master Merchandising Plan:  Most chain retail stores have their own planogram, designating where each product should go in the store. However, the more stores that a retail chain operates, the harder it is to get each store to execute the central buyer’s merchandise plan precisely.

With enough readers placed in strategic locations throughout the store, most merchandise can be tracked within a very small area. This means that the central buyer can get a report of all of the misplaced merchandise in each store.

This means that if a cellphone accessory is mistakenly placed in the video game section, it will show up on a report and can be immediately remedied in the field.  In addition, oftentimes products remain in the stockroom when in fact they should be out on the floor. A solid RFID system will be able to detect whether or not items are still in the backroom, where they probably won’t sell well.

Inventory Accuracy – Improving Click & Collect: Most retailers have an omnichannel strategy – meaning that customers can buy online and then pick up their orders in the store. Of course, this kind of click-and-collect strategy is predicated upon the accuracy of the inventory count in each store.  In other words, if the system says that there are two units of a certain SKU in a particular store, but actually there is an inaccuracy and there are zero, they will deliver a terrible customer experience when the customer shows up at the store only to find out that the product is not there.

The far better accuracy of RFID will allow retailers to have a much greater confidence level that the product is actually in the place that the system says it is. 

Understanding the Store’s Hot Spots: Another benefit of RFID is that there is a record of where products are displayed in a store. And that record can be overlaid with sales data so that we understand what specific displays and traffic areas within the store deliver the most sales.

Of course, different spots within a particular store may work better with some products than they do with others.  RFID technology can also help determine the best possible scenario when considering the SKU type, store type and display area.

Fast & Accurate Checkout: One of the most customer-facing use cases for RFID is being able to pay for the products much more quickly than ever before. With RFID, the cashier does not even need to take the products out of the customer’s basket in order ring them up in the system. The ability to skip the manual scanning process entirely makes a radical difference in wait times, especially during peak periods. In addition, RFID capability at checkout greatly reduces the cash reconciliation error at the register. 

Can Help Reduce Theft: Many retailers will actually embed the RFID tags into the security device attached to each item. Others will embed the RFID onto another separate tag, or even embed the RFID into the product itself.

Why add an RFID tag over and above the security Sensormatic tag?  This is for two reasons: the first is that even though there is a loud beep from the Sensormatic tag when the customer passes through the sensors at the front door, many store employees are desensitized to the alarm and do nothing when it sounds.  Or there may not be any store personnel around that particular entrance when the alarm sounds.

Having RFID will be an extra element of security because it will show where the item is – so long as it is within range of the reader – and will let the system know if the item has been taken off premises. It also helps with employee theft; many employees will hide an item in a secret spot in the store and then pick up the item while they’re on their way out the door.  RFID will greatly deter this type of behavior.

Detecting Fake Goods: A product’s legitimate manufacturer can embed an RFID tag into the product in a hidden place, allowing a reseller to scan for the signal to prove that the product is authentic. The trickier issue is whether or not the actual RFID tag can be forged, but that is fodder for another discussion.

Costs: The RFID tag itself is actually quite inexpensive – around 10 cents.  The trick is how to attach it to the product.  The most cost-effective method is to always have them attached at the factory during production.

The issue with many retailers is having the purchasing power to mandate that all of their suppliers incorporate RFID tags into their products.  It is simpler for retailers for whom the majority of their selection is private label, for they can force all of their OEM manufacturers to comply.  For standard retailers that resell branded goods, it can be harder to convince large brands to add RFID tags, especially if they are not doing so currently.

However, the more expensive part of the equation is the readers, which can range from $500-$2,000 depending on the reader’s sensitivity – the more sensitive the reader, the longer the readable range and the more expensive the unit. Also, fixed, or stationary, units tend to be more expensive than hand-held units.

Having a more sensitive reader is important if you want to accurately pinpoint the location of your products on the sales floor. There are also methods to triangulate a product’s position using a combination of readers.

Many larger retailers opt to use hand readers to keep expenses down. There are also attachments called “sleds” that can slip onto the bottom of existing bar code readers to make them RFID-capable.

Top RFID Suppliers: There are more and more companies that can deliver a range of RFID-related products and services, from hardware to full-blown systems.  The RFID Journal is an excellent data source.

Mojix is one of the leaders in RFID and creates complete systems for retailers that are mostly centered around inventory and supply chain. Another one is Zebra Technologies, another full-service supply-chain technology company that has added RFID capabilities to a number of retailers around the world.

Noah Herschman

is a Microsoft retail industry senior architect with over 30 years’ experience in CE retail, including stints at Tweeter, Amazon, Staples China, eBay, DHgate and Groupon Goods Asia. His partner

ShiSh Shridhar

has worked at Microsoft for more than 20 years, currently as retail industry lead for data and analytics. Together they are creating technical solutions that are sophisticated in design and specifically targeted to improve businesses by engaging customers, empowering employees, optimizing operations and transforming products.