By Dean Frew, CTO and SVP RFID Solutions, SML RFID.
According to recent news, statistics and insight from industry experts about the apparel business and omnichannel retailing, universal RFID adoption is a done deal within the industry. Or is it?
Recent statistics reported by retail analysts, industry groups and retailers themselves state that RFID usage numbers range from 50 percent to 96 percent. However, these numbers are inaccurate and overly optimistic as the actual pace of RFID adoption is far slower and more methodical than previously thought.
While the aim among retailers to integrate RFID technology into their operations is almost 100 percent, actual deployment of full RFID systems, including tags, readers and supporting software, still lingers in the single digits between just four and eight percent.
With the industry predicting a minimum 50 percent adoption and the reality presenting just four percent, where does this 46 percent gap arise? Firstly, the figures show an inaccuracy of the industry's estimations and comes down to the word "intent".
Whilst many retailers have in mind to test and implement RFID technology, the reality is most organisations are planted in the present and the targeted goal remains a complete contrast to current deployment rates.
This is where the statistical confusion of RFID adoption comes from. The statistics broadly adopted by retailers, take into account those in the planning stages of adopting RFID or in the initial trial stage but often in reality only have a few items that are tagged and in circulation within the supply chain. Compare this with the true figure of 4 to 8 percent, which only takes into account the retailers who are fully using the technology and have finished rolling it out.
Mass adoption of RFID systems in retail are still in the very early steps, as actual apparel market penetration is considerably lower than reported by some of those in the industry. For example, GS1 estimates the adoption percentage at more than half, whereas the RFID Lab at Auburn University Retail Study, the retail RFID performance and testing group, puts the installed base closer to four percent.
Analysing The Industry
18 months ago, we conducted a deep analysis of the industry to look at where to focus our own business strategies. While dissecting public information and mentions of units sold among apparel and footwear retailers (with at least 40 stores located in the U.S. and Europe). Following this research, we noticed that whilst tag growth was growing steadily, the number of stores actually using RFID was still relatively low.
In our bottoms-up market analysis (retailers and brand owners with more than 40 stores) we estimate that the total annual market for tags is between 35 and 37 billion tags and that there are approximately 200,000 stores in that same apparel and footwear market. Thus, we estimate the market penetration in US and Europe to be around 8 percent at the end of 2016.
So what does this mean for the industry? Looking ahead, dramatic growth is almost assured and there is a huge opportunity for vendors and retailers. Much of that growth and opportunity will result from the pressure of online sales that is prompting retailers to offer omnichannel purchasing for customers who can buy a product from the nearest store, online, or purchase online and pick up the product at the nearest store the same day. To have an effective omnichannel model requires a highly accurate inventory count in each store and remains one of the biggest driving forces behind RFID adoption.
However, whilst the opportunity for retailers to adopt RFID is significant, there are also a number of factors that have contributed to a slower uptake of RFID amongst retailers.
A number of the first generation RFID deployment were shaky. Early adopters of the technology were in some cases surprised at the cost of the installation when compared against the early benefits. In these cases, the long-term benefits were often out-weighed by the immediate costs. Technology adoption was also hampered in some cases by an inability for companies to align behind its deployment and integration with enterprise data.
However, the setup and integration processes are much simpler now. An occurring challenge for the RFID industry in the past was that it was often made too complicated and retailers would find themselves confused as to what they were paying for and the actual results. Now there is a shifted focus towards demonstrating the technology works and proven case results to highlight the benefits. The emphasis is offering solutions that best fit the retailer's operations, and make pilots and full installations more palatable for the end users to generate proven ROI.
Secondly, the bigger obstacles for implementing RFID revolve around change and how badly a retailer's leadership believe they need to. For the most part, retailers hold the opinion that "there's no need in fixing something that isn't broken", which means they often maintain older systems and inventory management processes in a bid to resist any change or disruption to the business.
We still manage inventory like we have for the past 30 years with SKU (barcodes) vs. Item-Level (RFID) inventory management. RFID technology has been around for over 60 years but it is only in recent years where the technology has been paired with complete solutions to generate significant benefits for retailers.
Despite a large percentage of the industry remaining uncertain toward RFID, broader adoption is inevitable. From our analysis of the industry and through conversations with retailers and experts, we can expect one third of all apparel and footwear retailers will adopt RFID technology.
In recent years, the power balance has shifted back to the consumer. With a plethora of options in products, delivery and costs, retailers are having to be more competitive than ever to meet these growing demands. In order to maintain their customer base, retailers are having to rethink their strategies and implement more creative ways to stay ahead of the curve and be at the forefront of retail innovation instead of being left behind it.