RFID: How the digitization of retail is progressing

RFID technology is becoming increasingly widespread - especially in fashion retail. Integrated into labels or hang tags, RFID chips are the digital signature of each individual product. They help retailers to build transparent supply chains, prevent losses permanently, optimise stock levels and simplify POS management. And, of course, they help to increase sales. Dutch company Nedap is one of the world's leading suppliers of RFID-based retail solutions, working with brands such as Adidas, Superdry and Acne.We asked Tom Vieweger and Ilse Protsman from Nedap about how the technology helps retailers.

RFID technology is making its way into the retail industry. In which areas are RFID chips already standard?

Tom Vieweger: We see that RFID is commonly used in "fashion environments," namely apparel, shoes, and sports. Many global implementations show that the technology has its most significant impact on the - so-called - vertically integrated models: brands that control their entire product life-cycle, including production, logistics and the sale across different channels.

Ilse Protsman: Estimations say that more than 10 billion products have been tagged with RFID in the last year – and the forecast is that this number will grow significantly year by year. As a consequence of a growing number of source-tagged brands, we now also see a lot of movement of RFID adoption from multi-brand sports retailers.

In which areas do you still see great potential?

Ilse Protsman: Parallel to the adoption in fashion, also other segments from the 'slow moving consumer goods' industry start adopting the technology - such as accessories, jewelry, and cosmetics.

Tom Vieweger: Especially, improvements on the label-side are fueling the potential for additional areas. Not only do RFID labels get less expensive, but they also show improved performance in challenging environments such as metals and liquids.

What are the biggest concerns you encounter?

Ilse Protsman: There are not many concerns anymore. After we saw a phase of pioneering about a decade ago, it's clear now that the technology is working, and business cases are proven.

Tom Vieweger: These days, we get many questions from our clients about the environmental impact of RFID labels, since they include a tiny chip and a small antenna. At the same time, these materials are kept to a minimum so that customers can dispose of them with regular waste. Production methods are becoming more and more sustainable. Finally, there is a persuasive argument on how RFID helps the brands to be more sustainable: the impact of high stock visibility enables them to sell more with less stock, especially since it's not necessary to hold high safety stocks anymore.

So, RFID Technology helps to reduce overstock?

Ilse Protsman: Yes, since retailers typically know that their stock accuracy is low, they often hold high safety stocks in their stores. Those safety stocks are utilised to ensure merchandise availability, even if the stock information might be wrong.

However, the problem is that the safety stocks extend the actual demand and, thus, those products must be reduced or even returned to outlets at the end of the season to clear the space. Here, RFID shall help to avoid such kind of waste. If stock information is accurate, and a retailer knows where the products are, they do not need such safety stocks.

One of the biggest hurdles in opting for RFID so far has been the cost. Has anything changed or is the benefit becoming increasingly clear?

Tom Vieweger: There is currently a massive wave of RFID adoption going on in fashion and apparel retail. This growth is primarily based on a business case that can be easily made: the need for accurate stock data is critical for today's (omnichannel) retailers; while at the same time the operating cost for deploying RFID has significantly decreased due to lower RFID tag prices that are now around three euro cents a piece. Considering that the price was ten euro cents only five years ago, this has made a big difference and significantly improved the business case.

An essential benefit of using RFID is creating stock visibility along the whole supply chain. Not only does RFID enable fast scanning, but as each individual item can be easily tracked and traced, a brands’ supply chain can operate on the foundation of accurate data.

This is particularly valuable in the apparel business with its short product life-cycles, high seasonality and the given color/size complexity.

To be able to react to shifting demands, brands and retailers need to fully understand the flow of their products.

How can chips effectively protect against theft?

Tom Vieweger: The beauty of RFID is that it's a technology with a multitude of functionalities. If a product is equipped with an RFID label, you can seamlessly register every movement – also at the exit doors of a store for security reasons. One might argue that having the security-tag "just" in the price label might be a weaker security level. However, at the same time, it means that 100 percent of the items in a store are secured then. The level of security can increase when retailers choose to sew the RFID chip into the care label.

Ilse Protsman: We see that, especially in recent times, the discussions with our clients have changed. Nowadays, retailers try to implement new customer services like self- or mobile checkout. In this case, RFID enables secure mobile checkouts - either employee-assisted or on the mobile device of the customers themselves.

Tom Vieweger: The deactivation of the RFID label takes place in a cloud database by changing the product status from 'unsold' to 'sold.' Whenever an item leaves the store unpaid, the RFID-based EAS antennas at the store exit query the cloud database and will give an alarm in case an 'unsold' product leaves the store.

Do you have examples where this works well?

Ilse Protsman: For a majority of our clients, it's some kind of a logical "next step" to add anti-theft use cases to their RFID implementation, as soon as all stock-relevant use cases have been implemented. Good examples from our users are companies like Scalpers and Celio. Both have added RFID-based article surveillance meanwhile.

Tom Vieweger: When it comes to secure mobile checkouts, we are involved in various pilot projects. Technically there are no problems, but the retailers are testing the acceptance by their customers of such services. We see that, especially in Asia, mobile checkouts become a standard service these days, and we expect to see the same development in the rest of the world as well. The main benefit here is that people no longer have to wait in lines at the checkout. People pay by using their phones and can easily walk out of the store. Decathlon is a good example here in the Netherlands.

Ilse Protsman: Another RFID use case for checkout is integrating this technology at the cash desk. Instead of one-by-one barcode scanning, all RFID labels are read at once, which significantly increases the speed of checkout.

RFID chips are also needed to equip the physical store with digital technology and to offer more service, for example in-store navigation, digital advice in the changing rooms, etc. How far has the market come?

Ilse Protsman: I would say, these days, really all retailers are heavily making their minds up about options to digitize their stores. With plenty of solutions, the question is, where shall they start, and how can they get a quick return on investment?

Tom Vieweger: What we are discussing with them when it comes to RFID, is to get the basics right: Stock visibility is the foundation for all digital in-store applications. As a retailer, you need to know what you have and what you need to make merchandise available to the clients.

Ilse Protsman: "Digital touch-points" such as displays, in-store kiosks, or smart mirrors have one thing in common – they can only drive conversion if the promoted products are actually available. Stock information across all systems must be accurate and consistent. Only then, conversion and a high customer satisfaction rate is guaranteed. Here, RFID enables a high stock accuracy.

What are the biggest mistakes in using RFID?

Ilse Protsman: Around ten years ago, we already saw a first "hype" with some RFID projects that have been kicked off, predominantly by "technology enthusiasts." However, those projects suffered from excessive complexity and highly engineered processes. It turned out that it was hard to find a business case since the scalability of customized solutions is often not there.

Tom Vieweger: As a consequence, we set up the implementation projects with our clients with our proven guiding principles: Keep it simple, phased approach, and start small, scale fast. When a digital application has proven to be successful, it is the moment to scale up to the rest of the stores. However, as technology, consumer demand, and the market are permanently changing, it is essential to maintain a high degree of agility, which means, for example., to take away internal barriers – continuously – and reiterate with new approaches.

Ilse Protsman: Finally, we put people in the center of attention. We think using RFID solutions in stores should be fun for the staff operating it.

What is your forecast: where will the technology be in five years?

Tom Vieweger: The RFID market is incredibly dynamic. We are convinced to see more than 50 percent of fashion products being tagged in five years from now. From a technical perspective, we will see that systems will be more and more connected so that all stock movements can be tracked in real-time in an EPCIS repository from the source of production to the customer.

Picture: Nedap

This story was previously published on FashionUnited.de. Translated and edited.