California Apparel News

RFID (radio-frequency identification) technology, which tracks merchandise via wireless readers and tags, has been used handily behind the scenes on cargo trucks and warehouses to track incoming shipments. Now it appears to be making its long-awaited debut on the retail selling floor.

Nudged by the recent announcement that Los Angeles–based American Apparel Inc. will employ RFID throughout its 140-unit domestic chain, item-level RFID appears to have reached a turning point. Until now, retailers have been hesitant to employ the technology on apparel because of privacy issues, costs and other factors.

But concerns have been calmed as consumers become more educated on RFID technology. Costs have come down to a certain point, but some retailers are realizing a level of return on investment that outweighs waiting any longer.

The value of RFID comes with having real-time visibility of sales, which helps them replenish merchandise more quickly and determine which items are selling and which aren’t.

In American Apparel’s New York stores, where RFID has so far been deployed, on-floor availability reached levels of above 99 percent. Weekly inventory measurements now take place using just two people, who need two hours, instead of requiring four people to take inventory in eight hours.

The RFID tags are embedded in the hangtags and read by stationary and mobile scanners to keep track of inventory. As a result, store associates have more time to service customers and improve store merchandising.

The company’s commitment reflects American Apparel Chief Executive Dov Charney’s brazen management style. The chain is among the first to employ this technology on a wide scale. Most companies are in pilot programs. Charney made the move after reconnecting with old Connecticut schoolmate and now tech wizard and RFID specialist Zander Livingston. He hired Livingston, and it wasn’t long before the company committed to a rollout within 60 days after signing vendors Motorola, Avery Dennison and Vue Technology.

As for privacy concerns, the company is making sure that consumers have total control.

“These tags will not be sewn into the garment, but rather are part of the removable hangtag,” said Jeff Kolb, information-systems director for American Apparel. “The second important point is that these tags will not, at any point in their life cycle, contain any information related to the customer or their purchase transaction. These tags are programmed at the point of distribution and never rewritten at the store level. They contain product information only, equivalent to a barcode. If a customer requests the tag be removed, it will be, or the customer can simply remove it themselves as they would before wearing the garment. We want our customers to know that we take their privacy very seriously.”

Gordon Adams of Lake Forest, Calif.–based Vue Technology, which provides the platforms for RFID systems, including American Apparel’s, said American Apparel’s move into RFID was contrary to what others are doing by keeping their plans private. “It is indicative of their leadership and innovation,” he said.

At least 20 other national retailers are using item-level RFID on a pilot basis. More will follow.

A forecast released this week by New York–based ABI Research indicates that the total RFID market will hit $9.7 billion by 2013, representing a 15 percent compound annual growth rate. The growth is being fueled by large users such as Sam’s Club, which followed parent Wal-Mart in requiring its vendors to tag shipments with RFID tags. Other programs are being initiated by German retailer Metro AG.

RFID will also be seen at this summer’s Olympic Games in Beijing, where organizers announced that tickets to opening and closing ceremonies will be embedded with RFID tags to prevent fraud.

Another longtime inhibitor has been the cost of equipment. The tags have come down to about 15 cents each, which is still a little high for some. But Rick Bauer, director of RFID program development for Pasadena, Calif.–based Avery Dennison, said it’s all relative when you consider return on investment.

“In order to put RFID on socks, belts, little things like that, it’s still not cheap enough. It has to come down another 15 to 20 percent. But companies visionary enough aren’t waiting for that. They are starting right now with a fairly good ROI that will get better in time,” he said.

Added American Apparel’s Kolb: “The cost of RFID and any other technology will continue to decline as standards mature and adoption becomes more widespread. Every company will have a unique business case to justify this cost. We are currently conducting a pilot [program] in a limited number of stores to establish this ROI metric, and we are always conscious of the declining marginal cost. Key contributors to our ROI are a reduction in human labor at the distribution and store level and improved inventory accuracy and visibility.”

Adams said the industry will realize the benefits of RFID by watching companies such as American Apparel.

“They can move faster than others. They can see trends and then react by transferring items between stores. They can maintain 99.5 percent accuracy rates [on in-stock items],” Adams said.

Bauer said the inhibitors to RFID use will remain price, the current economy and the perception of the technology.

“The perception, not the reality, is that the technology is not ready to go, but the perception over time will change. Europe is becoming more active. We need a few more implementations.”

Kolb said the current generation of technology needs to mature, but the right business case will see returns even now. “In 10 years I feel confident that some form of this technology will be the standard,” he said.