Wal-Mart States Its Case for RFID
The reality of RFID (Radio Frequency Identification) is hitting closer to home for apparel vendors as mass-market retailers such as Wal-Mart Stores boost their mandates for vendors in 2006.
The Bentonville, Ark., retailer, which set a precedent last January by requiring its top 100 vendors to tag all inbound pallets with RFID tags, will take it a step further Jan. 1 by asking 200 more of their suppliers to be RFID-compliant.
The wireless technology, which tracks shipments through tags embedded in labels via radio tracking devices, is aimed at improving the replenishment process for retailers.
For suppliers, it’s been a big headache as they’ve had to absorb the added costs of tagging. The tags cost about 30 to 50 cents apiece; when thousands are required, the cost adds up. The affected suppliers thus far have largely been the big consumerproduct companies, but apparel firms including VF Corp. are also included. Eventually,Wal-Mart will require all merchandise to be RFID-tagged.
A recent independent University of Arkansas study provided some support for Wal-Mart’s mandate. The report found that Wal- Mart’s customers found items in stock more often as a result of RFID technology.
The study said that out-of-stock merchandise levels were reduced by 16 percent; RFID-tagged products were replenished three times faster than standard items; and manual orders were reduced, resulting in less excess inventory.
“This is no longer a take-it-on-faith initiative,” said Linda Dillman, executive vice president and chief information officer for the retailer. “This study provides conclusive evidence that EPCs [Electronic Product Codes] increase how often we put products in the hands of customers who want to buy them, making it a win for shoppers, suppliers and retailers.”
The 29-week study analyzed out-of-stock merchandise at 12 pilot stores equipped with RFID technology and 12 control stores without the technology.
Said Bill Hardgrave, director of the RFID Research Center at the University of Arkansas: “Our analysis consistently found that the RFID-enabled pilot stores statistically outperformed the control stores without RFID technology in terms of providing improved on-shelf availability of items for customers. Essentially, this meant fewer total out-of-stock items and fewer occurrences of empty shelves when the merchandise was in the back room.”
Other findings showed that RFID-enabled stores were 63 percent more effective in replenishing out-of-stocks than the control stores, Dillman said.
“Now we have an independent study that confirms RFID has a significant impact in retailing,” he said. “We are already working on initiatives and enhancements that will build on this success.”
Details and findings of the study will be made available in the near future with a series of white-paper reports released by the University of Arkansas.
Also changing in 2006 will be the introduction of a new generation of RFID tags, now being developed by technology providers.
“Gen2 can make the ’sub-10-cent’ tag a reality,” Dillman said. “Wal-Mart will be ready to accept cases and pallets tagged with Gen2 tags beginning in January 2006 in our RFID-networked stores, clubs and distribution centers.”
With prices of tags reduced by more than 70 percent in some instances, Wal-Mart expects suppliers to start tagging additional SKUs in 2006. By mid-2006, Wal-Mart expects to stop receiving Gen1 tags.
By the end of 2006, Wal-Mart will have more than 1,000 stores equipped with RFID hardware. Currently about 150 stores in the Texas area are part of the initiative. In early 2007, the retailer hopes that its top 600 suppliers will be RFID ready.
Speaking for the vendors, the Washington-based American Apparel & Footwear Association and the Voluntary Interindustry Commerce Standards Association (VICS) conducted their own RFID study in conjunction with research firm Kurt Salmon Associates.
The study maintained that no single upstream process can absorb the tag and infrastructure investment of RFID, but when the technology reaches the retail selling floor, RFID may become a win-win situation. Most retailers are only requiring RFID at the warehouse level. At the store level, the costs can be offset by improvements in operational efficiencies, shipment and billing integrity, along with brand margin performance.
“Item-level RFID has the potential to bring new levels of inventory visibility and profit improvement, which could not be achieved through conventional means, across the apparel industry,” said Joe Andraski, president of VICS. —Robert McAllister
