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The Role of RFID in Enabling Omni-channel Retailing

January 3, 2022
By Adrian Beck

Introduction

A recently published ECR Report, which focussed upon on the way in which retailers who have invested in RFID technologies are innovating in its use, highlighted the critical role it can play in enabling businesses to deliver ‘Omni-channel’ retailing. Even before the COVID-19 Pandemic wreaked havoc across global economies, the retail industry was experiencing considerable change, not least in the growth of online sales.

One of the (many) consequences of the Pandemic was to dramatically accelerate this trend – perhaps not surprising given that in numerous countries ‘bricks and mortar’ stores were forced to close for many months. As countries have emerged from their various ‘lockdowns’ the increase in the proportion of sales driven by online retailing has slowed and, in some cases, declined as many (but not all) shoppers have rediscovered their abiding passion for visiting retail stores. But, for many retail businesses to remain competitive, they are having to develop and deliver a much more complex and demanding operating model – one which offers consumers a range of ways in which they can now browse, select, pay for, and receive the products they wish to purchase.

This ‘Omni-channel’ retailing is based upon giving shoppers greater choice: shop online and have the product delivered to your home; shop online and pick it up at your local store; browse your local store and have the product delivered to your home etc. For the consumer, there are few downsides to this model, but for retailers, particularly those that have traditionally been focussed almost exclusively on physical retail stores, this requires transformational changes in the way in which they are organised and operated if they are to remain viable.

The Omni-channel Imperative

A fundamental component of successfully delivering omni channelling retailing is having a high degree of inventory accuracy across a retail business – the quickest way to lose customer confidence and loyalty is to either be out of stock or, perhaps even worse, accept an order and then not be able to fulfil it because items are not actually available. When retailing was almost exclusively carried out in retail stores, it was not unusual for inventory records to be only round about 60% accurate, with out of stocks being a not uncommon aspect of the retail experience. In many respects, shoppers tolerated this because they often had little choice – they could try to go to another store that might have the missing item, but it could be some distance away. With the advent of online shopping, the power relationship has changed dramatically – if one retailer has not got the item, the shopper simply searches elsewhere on the Web for a retailer that has got it, all from the comfort of their living room! For Omni-channel retailers, having accurate and timely inventory data has now become mission critical.

RFID and Omni Channel Retailing

An earlier blog has provided some background to the development of RFID in retailing and how it is finally becoming more mainstream in certain parts of the industry, particularly Apparel. A 2018 ECR Report, which explored the experiences of 10 retail companies that had invested in RFID, found that the primary business driver was improving inventory accuracy to drive retail sales. These retailers had often seen their inventory accuracy improve from mid 60% to 95% or higher. This in turn had improved retail sales between 1.5% and 5.5%. What the more recent ECR research showed was that many of these same retailers were now recognising the role RFID was also playing in helping them to deliver Omni-channel retailing. It is worth reproducing some of the data to show how RFID was enabling this to happen.

As can be seen, generally Improving and Enabling Online Retailing was the most frequent use case selected, followed by Enabling Ship from Store (SFS) and Enabling Buy Online Pickup in Store (BOPIS). Respondents’ views were driven by growing awareness that fulfilling online orders requires much higher levels of stock accuracy throughout a retail business – in effect an Enterprise-wide View of Inventory (EVI) where stock held in all retail locations is accurately recorded and identifiable.

The research also showed that the stock accuracy and transparency delivered by RFID was a key factor in enabling bricks and mortar stores to be utilised as fulfilment centres, indeed one respondent noted that they would only allow stores to fulfil online orders where the required products were part of their RFID programme. For another respondent, RFID was enabling them to significantly reduce picking errors (automatically checking the contents of packages about to be despatched against the original customer order) and in turn considerably reduce the number of returns by as much as 90%.

subsequent use cases for investment in rfid technology

Inventory Accuracy and Omni-channel Retailing

It is important to remember that RFID is a means to an end – essentially it is merely a way to deliver data that in turn can be transformed into business intelligence. What the various ECR studies have shown is that for some parts of the retail sector, the move to Omni-channel retailing has brutally exposed the fragility of their existing systems to accurately and timely monitor their inventory records. Economic survival has necessitated that this must be addressed and the evidence to date suggests that RFID, in the right circumstances, can be a cost-effective way to do this.

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