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Retailers embrace RFID for loss prevention benefits

When retailers build a business case for deploying RFID, they often start with the improved inventory accuracy that the technology can deliver.

“We were very focused on inventory accuracy,” says Bill Connell, senior vice president of logistics and operations at Macy’s. “Our journey began with achieving the benefits from accurate data.”

Retailers, however, are starting to realize benefits beyond improved inventory visibility. German retailer Gerry Weber has already integrated RFID with its EAS system to curtail theft, and American Apparel has reduced shrink by 75 percent at some of its RFID-enabled stores.

When American Apparel deployed RFID, the goal was all about improved inventory visibility. The technology lived up to its reputation, and the retail chain’s 120 RFID-enabled stores operate at a 99.8 percent inventory accuracy rate, almost unheard of for an apparel chain with such varied SKUs.

But RFID had an unexpected side effect. By attaching UHF tags to about one million pieces of apparel a month, American Apparel has reduced shrink by an average of 55 percent. Some locations curtailed theft by as much as 75 percent.

Utilizing item-level RFID, alone or integrated into other EAS systems, has proven to deliver fuller, more intelligent data on every stolen or lost item than other loss prevention solutions available.

“In tracking what happens to an item at each and every point in the supply chain — from the manufacturing source to the customer — RFID wraps a tight security blanket around the entire retail supply chain,” says Zander Livingston, CEO and co-founder of Truecount Corp.

“With accountability on every item from RFID tagging, retailers are experiencing significant declines in internal theft as well as processing errors.”

Livingston says that industry-wide, 60 percent of retail shrink is related to employee theft. “RFID immediately impacts the bottom line by covering the retail operation with unprecedented visibility,” he says. “Store owners are able to see shrink happening. This means retailers can respond quickly to the causes of shrink in order to replenish, capture, correct and prosecute.”

That has certainly been the case at American Apparel, where RFID has proven to be an enabler for the retailer’s loss prevention team, providing the information needed to zero in on loss situations and identify exactly where shrinkage occurred. By studying fraud detection patterns exposed by RFID, American Apparel has identified dozens of sources of internal theft since implementing RFID. In each case, interrogation led to an admission of guilt by the employee. The data provided by RFID has been 100 percent accurate in identifying dishonest employees.

“When we started with RFID, shrink was not our focus,” says Stacey Shulman, vice president of technology at American Apparel, one of the retail pioneers when it comes to RFID. “Shrink was an unexpected benefit. It takes the ROI issue right away.”

Shulman explains that employees are much less likely to shoplift when they know that stores take daily inventory, and that they can pinpoint the exact time an item left the store without being paid for. It’s a much different dynamic, she says, than when inventory was taken once a month, and the company might not know about a stolen item for weeks.

“RFID gave us much greater visibility into shrinkage,” says Roger V. Blazek, vice president of shortage control and omni-channel retailing at Bloomingdale’s, which has deployed RFID at seven stores and has tagged more than four million units.

“When you know at any point in time which product left your store without being paid for, and you can build models around that, that can be pretty strong information.”

Blazek says that Bloomingdale’s will likely integrate EAS and RFID in future deployments, and that the retailer is also very interested in integrating RFID with its returns management system.

“For us, the biggest thing is that RFID by itself needs the increase and decrease of sales and returns to remain [accurate], otherwise inventory will be distorted,” says Blazek. “So that POS solution provides that real time accuracy that we need day in and day out. You could use the inventory process to do that every day, but even with RFID that can be cumbersome.

“So having that return and sale transaction data live from RFID really benefits the business. If something goes out the door, we will be able to go to the POS file and see if the item was returned or purchased, and if not, they will know that the item was stolen. It’s all about accuracy. You need your RFID file to be as accurate as possible and you can only do that with a POS solution.”

Christian von Grone, CIO at Gerry Weber, says that the retailer recorded a marginal decrease in shrink when the company closed the books on its fiscal year on Oct. 31. Gerry Weber began using RFID in all operations in January 2011, and all non-RFID tagged product didn’t work its way through the retailer’s supply chain until August, resulting in a narrow window for gauging RFID’s loss prevention benefit.

Gerry Weber, which is source tagging all 28 million of the items it produces (20 percent of which are sold in its own stores) is using RFID as a replacement for traditional EAS systems, with a reader in the entrance/exit that beeps and blinks if unpaid items are carried out of the store. Von Grone says that by using RFID on every item, the data provided by RFID is more precise than EAS, resulting in less variance in overall inventory.

“Obviously, with weekly stock counting, you will notice those stores with rising differences very early throughout the year, so you can take early measures,” says von Grone. “In former times, we used to count once a year. By then … it was too late.”

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