How the Digital Edge is Shifting to Item Level: RFID Sensors Transforming Omnichannel Retail

Dec 15, 2021
IT Strategy

RFID provides bottom-line benefits for retail organizations.

Credit: Avery Dennison

Today’s retailers are competing in the age of an omnichannel world. The share of total retail sales through digital channels more than doubled during Covid-19 and fulfilment options diversified as well. On the flipside, retail organisations need to learn to adapt in a world in which supply chains are constrained, where 94% of Fortune 1000 companies are seeing supply chain disruptions due to pandemic, and consumers are the ones who decide which channels they prefer for ordering and taking delivery of goods.

This convergence of forces has put additional pressure on inventory management, a discipline that has often lacked precision even in simpler times. Retailers typically conduct a full inventory count once or twice a year, but research has shown distortion occurs quickly and item level accuracy averages 65%. A lack of item-level inventory accuracy prevents retailers from optimising their omnichannel capabilities and investments. In an omnichannel world, where consumers have more choices where to buy, it adds complexity to the operating model to ensure items are always in stock by having to track inventory across multiple locations, in the warehouse and in transit, and delivery channels.

That’s why now is a good time for retail enterprises to invest in creating or expanding their digital edge with IoT sensors, such as radio frequency identification (RFID) tags, which use radio waves to identify tagged objects, to unlock product and supply chain visibility across their business. When combined with order management and inventory applications in the cloud, RFID delivers item-level visibility retailers need in order to manage omnichannel inventories at scale. Many consultancies report that RFID usage has increased in-store inventory accuracy levels to 98% or better, so imagine the impact for retailers and consumers when item level visibility jumps from 65% to almost 100%.

The more complex the environment, the more value RFID brings. Retail organisations that enable it across five or more channels see an average 20% higher ROI compared to those that use it in four or fewer channels, according to Accenture. And 80% of retailers say the benefits of RFID can’t be replicated by another technology.

Across-the-board benefits

The payoff comes at multiple levels. Taking inventory is so labor-intensive that it’s cost prohibitive to do more than once or twice a year, particularly for lower-margin businesses. RFID tags enable inventory to be taken continuously and electronically with significant labor cost savings that fall directly to the bottom line, which enables retailers to get item-level inventory updated and replenished to meet consumer demand.

An even greater payoff is the precision RFID provides. Retailers can get an accurate snapshot at any time of exactly what is in stock and where items are located in the supply chain. This significantly reduces the need to overstock to ensure availability. It also paves the way for other labor-saving innovations such as scanless and contactless checkout, which can also enhance in-store consumer experience and loyalty.

A more strategic benefit is the wealth of data that retail enterprises can unlock and capture as RFID-enabled stock moves through the supply chain, which will continue to expand as more products are RFID-enabled. An estimated 50+ billion industry wide items will be digitized in 2024 (RAIN Alliance 2021), boosting digital transformation and enabling new efficient retail business models in the future. 

“Data is the new currency,” says Mike Webster, General Manager of Oracle Retail. “Your ability to drive profitable execution from source to sale is all about quality, timeliness and scale of data.”

Having more accurate data enables retailers to diversify and improve delivery channels with greater confidence. Stores can be turned into fulfillment centers, Click and Collect or Buy Online Pick Up in Store models can be set up or RFID can be incorporated for returns management. Retailers can also slice and dice data to better understand customer preferences and target their inventories more precisely. Levi’s is reporting that accurate stock levels can lead to an average increase in sales in the mid single digits.

“Customers increasingly want to buy the exact item they want; if you don’t have it, they’ll go somewhere else,” says Bill Toney, Vice President of Global RFID Market Development at Avery Dennison.

Cloud-based inventory and order management completes the cycle by giving retail organizations the means to scale massively and securely on a global basis. Cloud architectures enable their customers to deploy multiple business models in different geographies and tap into an ecosystem of third-party partners that build on their core solutions.

There has never been a better time to make the jump to RFID. Omnichannel is the new reality. RFID makes it an opportunity.

Click here to learn more about how RFID is changing the retail landscape.