The Evolution of RFID in Retail Stores

Though it’s been around since World War II, radio frequency identification (RFID) in retail stores is a more recent development. For the past twenty years, retailers have used RFID primarily for receiving products and managing inventory. Around a decade ago came a big push to use RFID for loss prevention at the point of exit. Traditional EAS systems can be equipped to read RFID, so a retailer can receive the benefits of both: the security of an EAS alarm at the point of exit and RFID tracking capabilities.

Still, adoption of the technology remained slow. A lot of retailers struggled with how best to use RFID technology’s data capabilities. What data should they gather? How should they use the data? And service providers struggled to provide a quick return on investment (ROI). Twenty years ago, the tag alone could cost up to fifty cents. Adding that cost to millions or billions of items could put a serious dent in a retailer’s profitability. The scalability of RFID software systems also hampered the ROI. As a server-based technology, managing the RFID infrastructure required a lot of time, people, and money across a retailer’s supply chain.

Now, profitability for the retailer has risen, as advances in cloud technology have made the infrastructure scalable, easy to deploy, and increasingly less expensive. While the apparel sector has been the biggest RFID adopter in years past, retailers from nearly every sector are now adopting RFID for inventory management and then building upon its capabilities from there.

Before implementing RFID inventory processes, most retailers have between 65 to 75 percent inventory accuracy. Each inaccurately inventoried item is potentially a missed sales opportunity. According to management consulting firm McKinsey & Company, modern RFID solutions can improve inventory accuracy by more than 25 percent, which results in a 1 to 3.5 percent increase in sales uplift due to fewer out-of-stocks.

Scott Reithmeier, business development manager of RFID solutions at Checkpoint Systems, says his clients usually see a 3 to 4 percent sales uplift, while some retailers have seen as high as an 8 percent uplift after RFID solutions are implemented.

In its simplest use case at the store level, RFID simplifies managing inventory—taking regular inventory counts, updating inventory records, and being able to make decisions with that data. The retailer can then confidently stock and restock shelves, display products online, and fulfill orders down to the last unit. And it doesn’t even need to be every product in the store to have an impact.

“One misconception about RFID is that you need one hundred percent of your store tagged,” said Reithmeier. “The truth is that stores with even limited amounts of inventory tagged are making a huge ROI.” The key, Scott says, is starting with a few key categories that drive sales—the high-visibility, high-throughput items that are consistently selling and replenishing.

“Focusing on improving efficiencies and inventory visibility in those categories can build your business case,” he continued. “When you start looking at the cost, it’s a handheld scanner for every store, the tags, and the software. What we typically see is that the initial ROI per tag is about ten to twenty times the cost. Then those retailers could start building out a step-by-step process to get more and more of their inventory tagged. In the long run, the ROI is even more powerful.”

In an ideal world with universal RFID tagging, RFID could entirely replace barcodes in the checkout process. Every tag is encoded with the same product information as a barcode and is readable at a higher distance. A shopper with a basket of ten items could place everything on the counter, and the system could read all the RFID tags instantaneously, instead of having to scan each barcode one by one.

Since universal tagging is still distant on the horizon, RFID in retail can also work in conjunction with EAS systems. An EAS tag sets off an alarm if it isn’t deactivated; but with an RFID implementation, the EAS alarm will sound, and the retailer has better visibility on exactly what product has left the store because it was RFID tagged. For the store associate, RFID provides more visibility on store merchandise; if an item—either sold or stolen—happens to be the last one on the sales floor, staff can get a replenishment alert to restock the shelf, therefore maximizing sales opportunities.

As high-end retailers and brands with expensive merchandise and high omnichannel sales master the in-store inventory management process, they’re increasingly investing in RFID as an EAS and point-of-sale solution. They scan their stores weekly or even daily in some cases, but they don’t want to wait until the next scan to know what items have left the store. They need the information in real time because of high traffic and high sales throughput. RFID gives them an accurate picture of inventory movement in their stores.

ItemOptix™ software, an open-source RFID retail software, is the next iteration of Checkpoint Systems’ software platform. The company has provided proprietary RFID software to its clients for over twenty years, beginning with an on-premise solution and moving to the cloud within the past decade. With this new offering, Checkpoint is addressing the market’s need for flexibility and adaptability in software solutions.

“When you talk to retailers, their employee turnover paired with a variety of apps—which do different things and don’t talk to each other—creates the huge need for in-store training,” said Reithmeier. “What they really need is unified data, unified retail analytics.”

With the ItemOptix™ software’s open architecture, a retailer’s IT department can take bits of pieces of RFID functionality, integrate them into a single platform, adapt the platform to their needs, and train employees on a single system. Retailers who don’t need adaptations can deploy ItemOptix™ software right out of the box.

The huge explosion in e-commerce and omnichannel in the last five years created a critical need for ultra high visibility to what is in stock at all times. A comprehensive RFID retail system can give retailers real-time inventory accuracy from the manufacturing source to the distribution center to the store to the shopper.

Historically, the margins for omnichannel fulfillment from distribution centers have been lower due to shipping and handling costs. During the pandemic, a lot of retailers’ revenues stayed the same or even grew, but their margins severely decreased because omnichannel skyrocketed. They weren’t properly equipped to ship items cost-efficiently all over the country.

Higher inventory accuracy across a retailer’s supply chain essentially turns each store into a distribution center, reducing costs and increasing omnichannel margins. The store or distribution center closest to the customer fulfills and ships the online order, or the customer can buy online and visit the nearest store to pick it up.

An individual retailer’s implementation schedule depends somewhat on its existing systems and processes. That said, most retailers can implement a full end-to-end solution in a matter of months. For example, Checkpoint Systems was able to roll out a full-service RFID solution, including hardware, software, and labels, in five to six months last year for a multi-brand retailer with over a thousand stores.

Multi-brand retailers have an advantage because many products are coming in already tagged. For them, implementing an RFID solution is a matter of determining how they want their data to flow, setting key performance indicators, deciding what integrations they want, procuring scanners for every store, and building out their backend processes. Though some RFID implementation can be done fairly quickly, more complex solutions that require tagging at the source can take up to twelve months.

Think about any kind of product movement within the store, and RFID can connect it. RFID has become foundational to all other in-store technologies and experiences, from getting products to customers as quickly as possible, to engaging with customers and offering an online buying experience, to implementing artificial intelligence technologies in stores. To do any of that, you have to know what inventory you have in real time.

Visit checkpointsystems.com to learn how Checkpoint can assist your RFID implementation from start to finish, providing hardware, software, and label solutions that best meet your store requirements.

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