Retailers are responding rapidly to the shift from in-store sales to online sales by spending considerable time and financial resources on improving their integrated omnichannel customer experiences. These tools enable consumers to view, research and purchase products across all available sales channels. They also allow retailers to capture, manage and shape customer purchasing behavior. Retailers assume that this data will help them create a better shopping experience and lead to more sales.
However, there's a flaw in this assumption. Most retailers race into these projects believing their inventory is accurate. However, many industry studies conclude that this isn't true. In fact, according to the Auburn University RIFD Lab, inventory accuracy of U.S. retailers is about 65 percent. These studies are backed up by my own experiences participating in RFID projects over the years. In fact, most retailers I've worked with admitted that before they started the project, they had only a fuzzy view of true store inventory levels.
This isn't surprising given the fact that retailers typically only conduct physical inventory counts once a year. Compounding the problem is that legacy IT systems such as point of sale, warehouse management and store inventory are usually siloed, which creates multiple views of current inventory.
Therefore, until retailers tackle and solve the problem of gaining a single, accurate, real-time view of inventory quantities, locations and status, omnichannel improvements will not deliver the returns promised.
Now consider what many of these retailers are up against: Amazon.com, which boasts both great omnichannel tools and great customer service. The moment inventory is delivered to an Amazon fulfillment center, inventory levels are updated. And the second an item is sold, inventory is updated. Amazon knows that you have to eat your vegetables before your dessert, and that mastering inventory accuracy at the granular level in real time is fundamental to selling in the digital age to the digital customer.
Contrast the omnichannel experience Amazon provides with that of traditional brick-and-mortar retailers in terms of inventory accuracy. I don’t recall seeing a negative review on Amazon complaining about items not being available after an order is placed; I’ve see countless negative reviews about ordering online and going to the store to pick up the item only to find that the item could not be located by the store staff.
Aligning Retailer Capabilities With Customer Expectations
The Parker Avery Group recently published a whitepaper titled, “Omnichannel Inventory Accuracy – Implications and Customer Impact,” which concluded that “… an acute focus on inventory accuracy is one of the most critical components in ensuring those expanded capabilities resonate with your customers and deliver on the promises of your brand.”
A survey presented in that paper compared omnichannel customer expectations with the ability of retailers to meet them. In fact, 88 percent of retailers said they were concerned about their inventory. Almost half (49 percent) said store-level inventory accuracy was their greatest challenge. Among the issues with poor inventory visibility was the inability to enable customers to order online and pick up in stores. More than half (52 percent) cited this issue as a major barrier to enabling customers to pick up online orders in stores — even as fully half of consumers interviewed said they expect to buy online and pick up in-store.
RFID Drives Improved Inventory Accuracy
Meanwhile, retailers that have begun using RFID at the item level have consistently demonstrated across multiple store formats and products categories that they can transform on-shelf, in-store inventory accuracy from 65 percent up to an incredible 99 percent. That missing 1 percent is noise in the system — e.g., product that may have been set aside in a dressing room, returned to the cash wrap area, at a work station awaiting return to the distribution center because of product quality issues.
So, what does near absolute confidence in inventory quantities and locations do for a retailer? Based upon industry research and my own observations, quite a bit. Retailers can expect the following:
- Decrease out-of-stocks up to 50 percent and increase item availability, thereby boosting sales up to 20 percent, according to the Auburn University RFID Lab.
- Reduce receiving in-store by 90 percent, inventory carrying costs by 40 percent and omnichannel fulfillment time by 75 percent, according to ChainLink Research.
- Reduce markdowns by 10 percent to 25 percent, according to GS1.
Getting Omnichannel Right
How can a retailer ensure that RFID will provide real value to its omnichannel operations? I’ve found that using key performance indicators like the ones above are especially useful when doing either a before/after or control store approach in evaluating RFID performance. However, I recommend that retailers spend no more than six weeks to eight weeks running pilots or proof-of-concepts. Any more time and you lose your sense of urgency and focus. In any case, you should have a good idea of the impact RFID will have by then. In fact, one CIO told me that if he was unable to prove the numbers in the first few weeks, then his organization shouldn’t be rolling out RFID. Fast-forward: He did, and it is.
Consumers expect a smooth purchasing process every time, regardless of whether they're shopping in-store or online. In response, retailers have provided them with tools to make these purchases a reality. However, without high confidence in inventory numbers and their location, an omnichannel approach is doomed to inefficiency, customer disappointments and lower profits. Ample research and my own experience have demonstrated that RFID can supply accurate inventory information that can deliver the returns promised. It’s time that more retailers evaluate RFID in pilots/proof-of-concepts to see if the technology can deliver for them.
Duncan McCollum is the senior project director at Checkpoint Systems, a provider of merchandise availability solutions for the retail industry, encompassing loss prevention and merchandise visibility.
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