Winning in Apparel Retail With RFID: Today and Tomorrow
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Omnichannel. Cycle counting. Smart dressing rooms. Continuous visibility. Inventory accuracy. Hardware. Apparel retailers and brand owners have likely come across these terms many times while researching RFID. But which of these represent real-world benefits or concerns of today, and which are on the horizon? What solutions will best position your company for leveraging an investment in item-level RFID to win both today and tomorrow? Dean Frew, founder of SML Intelligent Inventory Solutions, shares his experience gained through numerous enterprise-class retail deployments in this presentation. He looks across a spectrum of use cases to identify the major ways in which RFID is adding value for apparel retailers and brand owners. You'll get a deeper understanding of the value proposition of RFID as it is today, as well as how different types of retailers and brand owners adopt and adapt the technology in different ways to maximize their ROI.
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Winning in Apparel Retail With RFID: Today and Tomorrow
- 1. Winning in Apparel Retail With RFID: Today and Tomorrow SML Intelligent Inventory Solutions March 19, 2015 1
- 2. Today’s Speaker Dean Frew President & Founder SML Intelligent Inventory Solutions (formerly Xterprise) • 15 years of RFID industry experience • Numerous global deployments across several industry verticals, with a focus on retail apparel • Extensive knowledge of the technical and business side of item-level RFID 2 info@sml-iis.com www.sml-iis.com @SMLiis
- 3. Contents • Part I: Crafting an RFID Program That Adds Value, Not Complexity • Part II: Deploying the RFID Solution of Today and Tomorrow • Part III: Characteristics of the Solution of Tomorrow
- 4. Part I: Crafting an RFID program that adds value, not complexity
- 5. Where does value come from in RFID? Sales & margin benefits •OOS reduction •Merchandising & SKU density •Omnichannel impact Cost benefits •Labor cost reduction •Audit elimination •Existing ticket opportunity cost Inventory benefits •Reduced shrink •Reduced safety stock •Enhanced forecasting accuracy Supply chain benefits •Elimination of mis- shipments •Reduce SC inventory •Reduce SC shrink 9 17 1 73 The major drivers of business value in RFID… …mapped to typical value creation ROI breakout by component Total = 100% Limited by tag costs and overlaps with inventory benefits Where is the value creation from customer experience, advanced analytics, EAS? The main value drivers of RFID still lie in inventory management. Most retailers have not captured this yet.
- 6. Why aren’t companies capturing the low-hanging fruit? RIP RFID Program “Who needs a pilot?” Too few items tagged Wrong categories tagged Poor execution (especially rollout) Mis-prioritized use cases Lack of internal support Suboptimal technology profile Unjustifiable business case • Department store retailer deployed full solution chain-wide, but did not tag high enough proportion of items; unable to realize & communicate meaningful results to senior leaders Mis-prioritized use cases • Mid-size specialty apparel retailer insists on smart dressing rooms as part of Phase I implementation Lack of support • Mid-size specialty apparel retailer studied RFID, justified business case, developed viable solution roadmap—but did not have senior enough sponsorship; project stalled for years 6
- 7. The “Right” Use Case Varies By Entity, But Inventory Still Rules Them All Use case Retailer Type Inventory accuracy* LP/shrink redux Shipment audits Brand authentication Display compliance Customer experience Specialty retailer Department store Brand owner w/ retail Brand owner Accessories *Includes omnichannel benefits, reduced overall inventory and related benefits accrued from highly accurate inventory Value frontier While business case varies by entity, Inventory accuracy remains the key value driver across all types The value frontier is pushing rightward over time, but the far left of the use case graph is still where retailers should attempt to maximize ROI High impact Low impact 7
- 8. How Are Different Retailers Employing RFID Today? Retailer type Avg. % tagged items Sales lift (% of tot.) Shrink reduction pct. (type) Inventory reduction (% of tot.) Primary use cases Specialty apparel • Replenishment • Cycle counting Department store • Display compliance • Replenishment Brand owner • Replenishment • Cycle counting Luxury • Loss prevention • Authentication Jewelry • Loss prevention • Authentication Good Poor Benefit 8
- 9. The Most Successful Retailers Understand the Relationship Between Solution Footprint and Value Created Incremental value capture Light (HH Only) Medium (HH+Fixed) Heavy (HH+Fixed/Overhead) Use cases enabled Footprint size (HW cost) • Cycle counting • Replenishment • Out-of-stocks • POS • Transfers • Receiving • Continuous coverage • Display Compliance • Sales Conversion Fixed reader Handheld reader 9
- 10. RFID for Brand Owners (i.e., Suppliers) Has Shown Mixed Results Scenario Business case built on… ROI Brand owner with no retail and no tagging mandate seeking to add supply chain value with RFID Role of RFID Reduction in misshipments Cost center Brand owner with no retail and tagging mandate 1st: Reduced TCO 2nd: Increased sales in retail Cost center with secondary benefits from retailers Brand owner with significant retail presence Retail benefits Value driver +- +- +- Brand owners that are mandated to tag or that own retail stores (and especially both) will find significant value from RFID 10
- 11. Summary: Keys to a Value-Added RFID Program Understand retailer-process fit... …to ensure critical business case elements are the focus… …with the appropriate solution footprint. What percent of my items are tagged (or taggable? How many items do I carry? What is my SKU mix? How much of my supply chain do I control? How do I optimize my solution for the highest-value use cases? Does my vision for RFID prioritize high- value use cases? How will use case prioritization evolve in the future? What minimal footprint is required to effectively achieve the desired business case? What use cases do I anticipate in the future? Does my solution spend reflect the highest priority use cases? 11
- 12. Part II: Deploying the RFID Solution For Today and Tomorrow
- 13. Moving Beyond the First-Degree Use Cases Customer experience Advanced analytics Real-time item tracking IoT? The promise Affordable Continuous The challenge Accurate Pick two.Want all. 13
- 14. The Horizon for Future RFID Use Cases 2nd-order analytics Location-based event- driven reading Real-time continuous coverage Inventory Management (today) Inventory focused, heavy integration w/ ERP, WMS, RMS, new inventory management processes, basic inventory-related analytics Minimal integration w/ CMS, EAS, etc. to provide rudimentary customer analytics (e.g., conversion) Expansion of strategically placed readers to interact w/ and record customer & product movement based on events (e.g., smart dressing room) Extensive integration w/ multiple location-based technologies enabling real-time tracking of product & customer movement Enhanced inventory Now - 1 year 1-3 years 4 - ? years 14
- 15. Retailers Must Leverage Today’s Solutions to Lay the Foundation for Tomorrow Today’s considerations lead to tomorrow’s use cases 1. Will the solution scale as my enterprise scales? • New IT architecture • New locations • New lines of business 2. Will the solution integrate with my IT architecture and infrastructure of the future? • Additional systems beyond ERP (e.g., CMS, web analytics, etc.) • Dynamic scaling • APIs for easy integration with unforeseen platforms 3. Does the solution make it easy to create a flexible RFID footprint? • Integration w/ multiple fixed & handheld configurations • Ability to manage data across numerous (different) devices • A solution unable to scale or interact with emerging technologies cannot enable future use cases and will require overhaul/replacement w/in 5 years • As IT infrastructure & architecture evolves, the solution must make it easy to manage data across systems. If a solution is beholden to a particular IT structure, the retailer’s flexibility is limited. • Hardware and tag evolution is likely to drive use case innovation in the RFID world; if software does not easily interact with a variety of current and as- yet undeveloped hardware configurations, the retailer’s flexibility and speed-to-implementation is adversely impacted. Solution considerations Implications on use cases 1 2 3 15
- 16. Summary: Building the Solution of Tomorrow, Today Today difficult tradeoffs exist... …but future use cases are becoming rapidly viable… …necessitating important considerations for deployment of an RFID solution. Technology exists today for virtually any use case—but it is not always practical Scaling of the RFID market as a whole will drive investment up and costs down Today, the leading use cases for ROI are still inventory management-centric “2nd generation” RFID solutions are quickly emerging, leaving retailers still waiting to capture “1st generation” benefits at risk for being left behind RFID will move retailers even closer to the customer in conjunction w/ other technology Inventory will only be enhanced as the cornerstone case for RFID With a rapidly evolving market, retailers must choose best-in-class software that can win with today’s and tomorrow’s solutions Better, cheaper hardware will drive use case innovation and require scalable, extensible software solutions More sophisticated use cases mean reducing complexity of deployment is essential. 16
- 17. Part III: Characteristics of the Solution of Tomorrow 17
- 18. - 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 350,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Good Solutions Must Be Easily Scalable Near-simultaneous transactions (4 hr window) Number of stores (hundreds) A four-hour cycle count window across an enterprise can produce hundreds of millions of transactions needing to be processed within that window • Can the solution handle transaction load (within a reasonable amount of time)? • Can the solution scale across clustered servers & VMs? • Does the solution enable the organization to scale systems via (e.g.) SOA? Over 20,000 transactions per second 18
- 19. Example: SML IIS Clarity™ Software Architecture Was Engineered From Ground Floor with Scalability In Mind • Highly scalable architecture, layered and decoupled to allow scaling points at each layer • Web and applications, queues, caches and data layers are all independently scalable • Event driven application architecture • Inherently scalable • Easily extended to support new features and functionality • Domain driven design • The system was designed from the ground up to enable serialized inventory visibility and operational control • Latest technologies and practices • Web API interfaces Messaging, queuing and caching ETL Data warehousing, synchronization ERP WMS RMS Web CMS Load-balanced, dynamically-scaling application layer Data management and warehousing Enterprise systems integration Data collection & input • Worker processes • Applications • Presentation layer • Worker processes • Applications • Presentation layer • Worker processes • Applications • Presentation layer Database (SQL, Oracle, MongoDB, etc.) • Worker processes • Applications • Presentation layer
- 20. The RFID Solution of Tomorrow Is Extensible Across Numerous Integration Touchpoints WMS ERP POS RMS CMS .com Mobile IMS POGS POS As an essential component of the retailer of the future, RFID systems will need to be fully integrated with numerous enterprise systems. “Light touch” not an option for value creation Extends value of existing systems 20
- 21. The Solution of Tomorrow Must Accommodate a Variety of Hardware Configurations… Fixed reading devices Automated reading devices The lowly, lowly handheld 21
- 22. …That Drive an Even More Complex Variety of Use Cases Solutions today must support both the use cases of today and the use cases of tomorrow without the need to create separate, independent networks of functional relationships 22
- 23. Summary: Characteristics of the Solution of Tomorrow Today’s solutions must be massively scalable... …as well as easy to integrate with existing and future technology… …in order to full support the use cases of today and tomorrow. How fast will your organization grow in the future? What number of items will need to be tagged and counted to fully capture the ROI of RFID? How will IT systems scale alongside organizational growth? What hardware configuration today captures the most value for least cost? What performance is required of hardware in order to deliver future desired use cases? Will your existing software integrate with the types of hardware likely to drive emerging use cases? How will your organization leverage nearly infinite possibilities RFID will bring to the table without breaking the bank? How do you build a robust solution today that will deliver value tomorrow without becoming obsolete? 23
- 24. Key Takeaways Today Tomorrow So what? • Today’s value is still driven from inventory management- based use cases • Value will increasingly be available from 2nd-order benefits like customer experience and analytics • Build a solution extensible and flexible enough to bridge the gap between rapidly evolving solutions • Retailers must tag more product, faster to capture RFID ROI • Passive RFID will be ubiquitous across a range of use cases & applications • Scalability and integrability of software and the ability to process millions of near- simultaneous transactions is critical • Use cases typically hindered by accuracy, expense, or continuity • Cheaper, better hardware makes many new use cases feasible • Capturing current and future use cases will require value maximization without the complexity (more value add per vendor, etc.)
- 25. Webinar Summary: RFID Has Already Changed the Way the Game is Played, and the Gulf Only Gets Bigger… 25 In stock! • Increase sales 2- 14% • Cut out of stocks 50% or more • Reduce inventory > 10% • Reduce safety stocks • Slash shrink >50% (especially internal) • Eliminate expensive audits • Enhance omnichannel • Do ship-from-store and in-store pickup
- 26. Q&A 26
- 28. …That Drive an Even More Complex Variety of Use Cases Solutions today must support both the use cases of today and the use cases of tomorrow without the need to create separate, independent networks of functional relationships 28
Editor's Notes
- ** why highlight that supply chain is so low? How will herman kay feel about paying us $128k? <<If Herman being forced to tag it still makes sense for them; suppliers mandated to tag will benefit (via TCO reduction) by doing RFID. SC benefits segue into inventory benefits in terms of forecasting accuracy, reduced safety stocks, etc. as well. The biggest reason an attractive ROI in supply chain is difficult today is that the cost of tags is an order of magnitude higher without a big direct benefit to sales. I changed wording to reflect this in the callout.>> ** we might want to focus this slide on “in-store”. << Most of it is naturally in store and most interest will probably be around in-store use as well>> ** Maybe we state that “supply chain ROI’s are emerging and are natural to be lagging as RFID benefits are being pushed “up-Stream” << Yes and reiterate if you are forced to tag you should do RFID and that it is currently harder to quantify the overlap with some of the purple inventory benefits that are often driven by retail but can have upstream effects as well>> Main idea: There are four major categories of business value, with the bulk of value coming from sales and margin improvement at retail. This is where retailers should be focused, and those mandated to tag, if they have retail ops, should be deploying RFID in retail. Taken from business model; colors map from 4-square to pie chart SC benefits are small; message is that brand owners w/ retail need to be thinking about how they deploy solution to retail, not just supply chain Value created by customer ex. Etc. is on the way, but message is “this should not be what you’re building your business case around today”
- ** changed main point bullets Main idea: there are common themes for why RFID programs sputter and fail. Reinforcing previous slide, not understanding the correct use cases for maximizing RFID is chief among the reasons deployments fail or underperform. Use real life examples w/o naming names (referring loosely to a) Kohl’s, b) Bebe (and others), c) Buckle)
- ** would change “entity” to Retailer type to be consistent with next slide Main idea: AS IT STANDS TODAY, the inventory, shrink, and to some extent auditing functions of RFID are the high impact drivers, particularly relative to emerging use cases like brand auth and customer ex. This will change over time as second-order use cases become more viable and first order are no longer a competitive advantage. Use case can vary somewhat by entity type, but generally the same items are high impact across the board This is subjective view of our experience. Feel free to re-color.
- **changed department store row … not sure that Macy’s and M&S would agree with previous depliction … don’t want to be pick a fight << Making it controversial is a good way to stand out and initiate discussion >> ** bulletized last column Main idea: benefits in apparel are strongly related to % items tagged (itself correlated to retailer type and supply chain control). Luxury and jewelry are playing a slightly different game because they do not have the volume and turnover of apparel. Implication is that dept stores need to push to tag more, faster and brand owners need to tag everything they can in stores they control Reinforces that brand owners should tag more Gives an idea of how the business case varies across store types
- ** changed descriptor of light, medium and heavy **like the incremental value creation chart…tells the right story Main idea: The lion’s share of value capture comes from 2 handhelds in a store. Additional hardware increases cost significantly but marginal return isn’t necessarily commensurate. Don’t go for the big hardware rollout until you’ve mastered the fundamentals. Important to note this applies TODAY; as use cases evolve additional hardware formats might become more valuable.
- ** moved indicator on middle situation… Levi’s did see and increase in sales when JCP started tagging . <<Changed wording a bit. Primary benefit/business case is still reduction in TCO but there are secondary benefits that can help suppliers by having the retailer improve replenishment/reduce out-of-stocks to create a sales bump >> Last two slides focused on retailers. This one focuses on suppliers & brand owners. Main idea: we aren’t advocating that everyone should go do RFID for the heck of it. To appear objective, we have to acknowledge there are cases where an RFID program doesn’t make a lot of sense, e.g. a pure supplier with decent operational efficiency. In this case ROI for self-funding RFID will probably be negative. That said, if a brand owner is FORCED to tag (we maintain most will be), then it behooves them to implement RFID for themselves because they can reduce the pain (make the ROI less negative than it would have been, e.g. in the top scenario). And if the brand owner has retail, they should DEFINITELY be using RFID there because it becomes a positive ROI benefit driver.
- **these images should reflect finals that we end up with… we have changed a few. << updated >> **made some text changes Main idea: summarize and present some of the key ideas retailers should be considering in the areas just covered.
- Main idea: there are a lot of things RFID can do that retailers are excited about. The technology exists to do these things (even if with a brute force approach). The problem is having a continous-viz, highly accurate, yet affordable solution isn’t a present reality (it is coming in the not too distant future). Today, you have to pick two. Affordable and accurate (HH solution) means not continuous. Affordable and continuous means accuracy suffers. An accurate, continuous solution (w/ today’s fixed readers you would need one on every exposed surface) is not affordable. In the next page, talking about future cases, it should become clear why the intersection of the right Venn is a unicorn today. But we need to be optimistic with the audience: the cases are coming, we want them as much as they do, and we’ll be the first to push it to market when we know we can hunt down the unicorn and not just be selling hot air.
- ** a couple of changes to text for clarification Main idea: let’s take a risk and guess when these things become viable instead of saying “not now” and leaving it there. This will enable building a case that a robust software solution TODAY will serve the technology needs and use cases of TOMORROW. And we will explain exactly what that solution needs to look like. 1st order analytics are inventory management related 2nd order integrate minimally w/ other systems to provide higher level BI, e.g. customer counting, rudimentary conversion rates, smart-dressing concepts 3rd order analytics will emerge from real-time tracking and contact/communication with customers via heavy integration w/ other location-based systems
- Main idea: Today’s solution needs to have an eye on the rapidly changing future while fully capturing ROI today. Scalable, integrates w/ client systems, allows for flexible tech footprint as new HW emerges
- ** update images from previous pages. ** got rid of “feasible” in first pullet of left section **added on rt hand point … I that we can reduce some of the verbage there to get it to fit. Can probably skip right over this one, but drives home previous points
- Main idea: Make real the sheer volume of transactions a major retailer will need to undertake in a small window of time Double check the right hand bullets—do they make sense? Numbers based on Target items on hand per store, cycle counted in 4 hour window
- I will abstract this slide to avoid giving away too much. Main idea: a scalable application that supports future growth looks like Clarity
- **images did not come through (I think) << no pics in those hexes, the image graphic won’t show up when you go into presentation mode >> ** changed text Main idea: the solution of the future that makes integration with numerous systems easy looks like Clarity
- Main idea: the hardware-agnostic solution of the future that enables integration with all kinds of hardware types and advances looks like Clarity
- Try a word cloud of use cases here; main point will be that solution that supports both today’s and tomorrow’s use cases (extensibility) looks like Clarity http://www.wordle.net/create
- ** I think that this is the best place for quantifying ROI. I want to make sure we talk about it. << adding separate slide to cover >> Not sure this works. Problem->solution->so what might work better. Think about it.
- This could be a substitute for page 22…