RFID in the fashion industry: from trend to reality
Radio frequency identification (RFID) isn’t a new technology. In fact, RFID history starts during World War II, when a radio transmitter was installed to Allies aircrafts. The system was called “Identify Friend or Foe System”. Before that, determining whether friend of foe was mostly based on visual recognition.
But in this last decade, retailers have massively adopted RFID to face many and diverse challenges, such as optimizing operations, improving inventory accuracy and delivering outstanding customer experiences. According to an Accenture study, in 2018, 69% of surveyed retailers around the world had a significant level of RFID adoption.
Apparently, RFID has a lot of potential in the retail industry, as CAGR 2020-2025 is 12,9%. But, at the end of the day, which is the ROI of RFID technology? Which are the most widespread use cases?
What is RFID?
Radio Frequency Identification (RFID) is the wireless non-contact use of radio frequency waves to transfer data.
Tagging items with RFID tags allows users to automatically and uniquely identify and track inventory and assets. On the surface, this appears to be similar to how a barcode infrastructure works. However, there are significant differences with RFID from an operation perspective that gives businesses the opportunity to redefine their processes, such as:
No direct line of sight required between reader and tag. Therefore, unattended reading stations can be set up to identify objects.
Multiple simultaneous reads. RFID allows multiple tags to be read simultaneously while still uniquely identifying the various objects being tracked.
Read range. depending on the type of RFID, they may have a read range between a few centimeters to over 20+ meters.
Data capacities and Read / Write capabilities. RFID tags data capacity can exceed 256kb and some tags have read/write capability – information on the tag can be customized or updated.
Withstand harsh conditions. RFID systems can perform strongly in harsh applications such as outdoor utility meter reading.
Lifespan. RFID tags can be reusable and can be packaged to be extremely durable.
Advanced monitoring. In conjunction with monitoring equipment, RFID tags are capable of recording time, temperature or other variables of an object as it travels through the supply chain.
An RFID system is comprised of, at least, RFID tags, RFID readers and the requisite RFID middleware that interprets tag information and communicates it to the application software.
There are two types of RFID systems. The tag power system defines which type of system it is:
Passive RFID systems use tags with no internal power source and instead are powered by the electromagnetic energy transmitted from an RFID reader. Passive RFID tags are used for applications such as access control, file tracking, race timing, supply chain management, smart labels, and more. The lower price point per tag makes employing passive RFID systems economical for many industries.
Active RFID systems use battery-powered RFID tags that continuously broadcast their own signal. Active RFID tags are commonly used as “beacons” to accurately track the real-time location of assets or in high-speed environments such as tolling. Active tags provide a much longer read range than passive tags, but they are also much more expensive.
RFID use cases: from improving operations efficiency to deliver outstanding in-store customer experience
There are multiple opportunities for value capture when adopting RFID apart from the inventory accuracy. Main lines of action would be the following:
Inventory visibility and product availability. RFID enables inventory counting speed and accuracy therefore it enables omnichannel retailing as it provides near real-time inventory items to improve availability / service level across all sales channels, which results in increased customer satisfaction with the minimum investment in inventory (even lowering the inventory levels).
Process efficiency. RFID features, stated previously in this article, make inventory counts and inbound/outbound checks incredibly faster and more reliable. In the case of stores, it has been proven that inventory count efforts can be reduced up to 96%. For example, Zara said associates used to have to spend 40 hours taking inventory, because it required them to scan bar codes from items on racks one by one. But now, thanks to RFID-powered retail guns and racks, they can walk around the store and get the job done in about five hours. Apart from that, in an omnichannel context with multiple delivery and return options, the ability to have accurate data of inventory levels as well as knowing where the stock is located turns to be key to improve all activities related to ordering.
Counterfeiting and theft. Counterfeiting is a huge issue for brands, especially for those in the luxury segment. According to a report by the Organization for Economic Co-operation and Development (OECD), the global trade of counterfeit and pirated goods amounts to more than half a trillion dollars per year and it represents 3,3% of the global trade. Nowadays, it has become more and more difficult for the customer to distinguish between the original and a fake version. Many solutions to fight counterfeits have already been tested, such as authenticity cards or holograms, but they are more or less easy to copy. NFC RFID tags, which can be embedded into the products, can carry a unique and encrypted digital ID that cannot be copied. Pioneering luxury brands in this field are Moncler and Salvatore Ferragamo have already tested or implemented RFID tags in their products.
Customer experience. RFID enables delivering an interactive, digital in-store customer experience. From showing information about the fabrics and craftmanship process, providing recommendations on matching garments, smart mirrors with instant request for colors, sizes or providing virtualized scenarios to improving the checkout processes. Many luxury brands, such as Burberry, Chanel or Nike have adopted RFID to deliver outstanding in-store customer experiences but, probably, the pioneer in the use of it as part of the in-store experience is Rebecca Minkoff, who, back in 2014, started testing the “connected store” concept leveraging this technology.
Real-time data. Last but not least, RFID can provide insightful data further beyond inventory and sales. As within the customer experience use case, RFID readers enable tracking customer interactions with products, which offer a brand new source of information not only to optimize inventories / working capital but also to view product performance from another perspective, from the eyes of the customer.
Prospects for RFID
Retailers are beginning to see the benefits of product traceability based on RFID to secure omnichannel execution, not only from the operations and inventory case but also from the customer perspective.
Nowadays, the most popular use for RFID is probably the least sexy: inventory accuracy. But, at the same time, it is the one that delivers most attractive ROI. On the other hand, those use cases which are more “customer-oriented”, like self-checkout and in-store smart technology, have a lower ROI, according to Accenture study.
There are many reasons that would explain these results. Most important would be:
RFID systems, although its cost has dropped significantly in the last years, are still expensive compared to barcodes or QR, not only because of the tags but also because all the tracking hardware (antennas, smart mirrors, digital displays) that is needed at store level to ensure the customer experiences.
While calculating the business case for inventory is quite straightforward (inventory levels, stockouts, labor costs), measuring customer satisfaction and translating it to financial indicators is not that easy and has not immediate returns.
But, if we trust what the retail experts say about in-store experience as the way to differentiate and build long-lasting, profitable customer relationships, the truth is that the attractiveness of the customer-centric, not direct-sales related use cases will grow over the next years. And, as technology will become more mature and deployment costs will go down, the business case will be a definite Go.