February 16, 2017

How Target Improved Sales and Omnichannel Customer Experience Through RFID

Retailers are using radio-frequency identification (RFID) technology to more efficiently track item inventories, which leads to more dependable fulfillment of customer demands.

RFID technology will continue to be one of the key elements driving digital transformation in retail right now, providing extended ability to accurately track individual items and enriching the omnichannel customer experience for both online and in-person shoppers.

Many retailers are jumping on the bandwagon of RFID technology, following the example set by Target. Retail Touchpoints notes that “Retailers are at the forefront of RFID adoption because they are most directly impacted by consumer needs — more than any other trading partner in the supply chain. The pressure is on them to deliver the accurate, seamless and fast shopping experience.” Here’s an illuminating look at how Target used RFID as part of its digital transformation, together with a look at what this technology makes possible.

What Is RFID and How It Works Inventory Magic?

Radio-frequency identification (RFID) is based on radio waves. Tags containing product information are attached to (or embedded in) objects, and this information is “read” by an RFID reader that sends out and receives radio waves. The information carried by these waves is changed into digital format that can be read by software in a computer or smartphone. An important aspect of RFID technology (unlike barcodes) is that the reader doesn’t need line of sight to the tag. Within its distance range, RFID tags indicate the exact item, so two identical shirts will each have a different RFID number. Barcodes, on the other hand, are the same on every identical product. More information on the nuts and bolts of RFID technology is available on the FAQ page of RFID Journal.

Although RFID is used across many industries, from tagging pets to identifying railroad cars, it has become a major presence in the retail industry, with apparel accounting for 4.6 billion RFID tags in 2016. There’s good reason for RFID’s popularity: even in the digital age, inventory accuracy can be tough to achieve. Companies that switch their inventory over to RFID technology see their accuracy rise from 63 percent to 95 percent on average, according to Bill Hardgrave, dean of Auburn University’s Harbert College of Business and founder of the RFID Lab. Furthermore, integrating RFID into a supply chain results an 80 percent improvement in the accuracy of shipping and picking, as well as a 90 percent improvement in receiving time. It’s unsurprising, therefore, that the entire RFID market, including readers, tags and software, amounted to $10.1 billion in 2015, and is expected to rise to $13.2 billion by 2020.

Target’s Use of RFID on Inventory Boosts Customer Service

Target has taken advantage of RFID’s outstanding potential for streamlining all aspects of item tracking. In 2015, the company invested $1 billion in technology and supply chain infrastructure at 1,600 stores, and a large portion of that investment focused on RFID. Retail InfoSystems notes that Target’s use of RFID has indirectly boosted sales figures, because the savings it realizes through streamlined inventory procedures are being redirected to customer service. The primary customer service area that Target has been focusing on is the very popular in-store pickup option.

Customers can order products online, and pick them up almost immediately at their nearest store. This convenience has been welcomed by customers, and CEO Brian Cornell points out that the store’s 26-percent increase in digital sales during 2016 is partly due to this service. During the most recent holiday season, the store geared up with many new pickup efficiencies, and expected to fill over half of its online orders through customer pickup at local stores.

RFID Enhances Target’s Omnichannel Customer Experience

In addition to its internal utility on the warehouse side, RFID also improves customer service. Its “smart label” technology helps assure accurate tracking of popular products, so that in-person shoppers won’t be disappointed by out-of-stock merchandise. In instances where a store does run out of something, the online inventory system enables them to let customers know which nearby location still has it in stock. Store employees also use handheld RFID readers to rapidly locate items, enabling Target to continue its focus on getting products into customers’ hands quickly. Eddie Baeb, Target spokesman, comments, “Our push to adopt item-level RFID inventory management is a component of that investment, and also supports our omnichannel supply chain initiatives.”

Other Retail Use of RFID

The ability to track an individual item anywhere it travels within a physically large department store provides an opportunity for employees to get creative. The Chicago Tribune profiles some of these innovations, pointing out that RFID has “the potential to bring some perks of online shopping to brick-and-mortar stores.”

At a recent RFID trade show, Zebra Technologies and Intel both showcased ceiling-mounted tracking systems. These enable stores to track an item’s pathway around a store. One potential use of such information is to determine problems with specific items. For example, a garment that repeatedly goes to the dressing room but doesn’t get bought might have a problem with fit. This granular identification technology also acts to identify and prevent theft at all levels, from cargo theft that occurs at the warehouse down to employee and customer theft. These anti-theft solutions are easily scalable down to small-scale retailers.

Lululemon Put Information in Customers’ Hands

Before instituting an RFID system, Lululemon Athletica tried out their pilot program of buy online, pick up in-store. The experiment resulted in a “terrible guest experience,” because supply issues made it impossible to fill customer orders more than half the time. After its launch of RFID technology, local Lululemon Athletica stores are now able to fulfill 96 to 99 percent of those online orders. Employees don’t have to go to the storeroom in response to customer inquiries; they can check the availability of items instantly with handheld devices. Shoppers walking around a store with the Lululemon app open on their phones are given the same access to the same item-level identification information, so they’re able to find out whether a given product is still available. Even if an item isn’t on the rack, it may still be somewhere in the store.

Macy’s Saves $1 Billion With RFID

Macy’s used RFID to more efficiently meet omnichannel fulfillment demands. Its item-level RFID succeeded in reducing a stunning $1 billion in inventory because the store has confidence that it can keep an agile, responsive inventory that meets all customer demands. Through the improved inventory management made possible with RFID, Macy’s offers shoppers it’s P2LU (pick-to-the-last-unit) omnichannel fulfillment program, giving them the opportunity to purchase the last of any item in stock. “Macy’s is a great example of how item-level RFID bolsters inventory optimization and opens up a world of possibilities for omnichannel fulfillment success,” according to Nancy Chisholm, president of inventory intelligence firm Tyco Retail Solutions. The store plans to have RFID tags on every item in its stores and fulfillment centers by the end of this year.

Manufacturer-Retail Partnerships Enhanced

As retailers have recognized the benefits of RFID, they have in many cases turned to their manufacturers and asked that the technology be implemented at the manufacturing end, before products reach distribution centers. This allows efficiencies on both ends of the delivery process. Retailers are receiving shipments faster 90 percent of the time as a result of RFID usage, and they’re able to respond with more rapid payments. Manufacturers are seeing improvements of up to 80 percent on shipping and picking accuracy, and reductions in obsolete inventory write-downs. A recent GS1 Standards Usage Survey finds that nearly half of all manufacturers are currently integrating RFID technology into their systems already, while another 39 percent plan to implement it within the next 24 months. The benefits these manufacturers realize from RFID technology include increased ability to track products through complex shipping routes, as well as lower inspection costs and greatly reduced shrinkage.

Medical Inventory Improvements

The ability to track large numbers of individual items has proved valuable in many industries outside of retail, and these benefits are beginning to be explored in the health care environment. New York-Presbyterian Brooklyn Methodist Hospital has recently begun using RFID tracking to drastically speed up and improve the accuracy of refilling patient medication trays. A time study showed that when individual medications arrive at the hospital already equipped with RFID tags, the amount of time needed by pharmacy technicians to refill a tray was cut from 25 minutes down to less than 60 seconds. The time savings was so drastic that the hospital was able to redeploy more than half the pharmacy employees assigned to this task, and made up its capital expenditure on the technology within the first three months.

Concerts and Events Track Individuals, Too

Large events like Coachella and Lollapalooza and smaller city festivals are all moving toward use of RFID technology platforms. Companies like Intellitix and EventBrite are supplying wristbands with RFIDs embedded in them. This technology streamlines every kind of event management, from helping to monitor lines to reducing ticket counterfeiting to enabling cashless payment. The wristband tickets, which can be mailed to registered attendees, eliminate many of the reasons that people originally had to stand in long lines.

Looking Forward

RFID technology will continue to be one of the key elements driving the digital transformation in retail right now. Melanie Nuce, vice president of apparel and general merchandise for GS1 US, sums up the imperative: “As industry collaboration and discussion grows, it will be difficult for companies to ignore RFID’s role as a critical enabler of inventory visibility and the seamless customer experience.” RFID’s ability to accurately track individual items will continue to provide unique value for both online and in-person shoppers, extending and enriching the omnichannel customer experience.

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