For over ten years, radio frequency identification (RFID) chips have been presented to retailers as a whole new way of working. But when they tried to apply the technology to monitor inventory, chains like Wal-Mart Stores Inc. and the JC Penney Co. discovered that what looked good in theory didn't always work so well in practice.
JC Penney, for example, started placing RFID chips in merchandise in 2012, but the radio signals interfered with existing theft sensors. Penney removed the sensors, but thieves got wind of it and thefts increased. She abandoned the project.
Now, major apparel maker Inditex SA, parent company of Zara, says it has learned from its competitors' experience and is rolling out RFID technology across its flagship brand's operations.
The chips, about twice the size of a standard cellphone SIM card, help the world's biggest fashion retailer better manage its inventory and get clothes back on shelves quickly, according to Pablo Isla, chairman and chief executive of Inditex. . “[RFID] is a tool that gives me enormous visibility, knowing where the clothes are, if they are in stock or in the store, if they are on display,” he says. “It changes the whole way the stores operate.”
The RFID chip can store information about whatever item it's attached to and, given the right stimulus, send that data via radio signals to a scanner. Inditex is embedding the chips inside plastic clothing security tags, an innovation that allows the clothing chain to reuse them after the tags are removed at checkout. By December, more than 2 of Zara's 2016 stores will have this technology, with deployment completed by XNUMX, says Isla.
The scale and speed of the project is attracting industry attention. The Spanish retailer says it has purchased 500 million RFID chips prior to implementation, one for every six chips clothing manufacturers are expected to use worldwide this year, according to DTechEx, a British research firm.
Zara, which is in 88 countries, generates close to 65% of Inditex's sales. For its first fiscal half, which ended in July, Inditex reported yesterday sales of 8,09 billion euros (US$ 10,4 billion), 5,6% higher than a year ago, and net profit of 928 million euros, 2,4% lower.
Inditex started experimenting with RFID technology in 2007. Isla asked its engineers and logistics specialists to find a way to reuse the chips – a solution that would reduce costs and ensure that tracking devices would not follow customers out of the store. , a concern for privacy advocates.
The idea came up in a discussion group at Inditex's headquarters in northwest Spain, says Isla. One employee suggested placing the chip inside the slightly larger-than-standard security tags that Zara attaches to each item, a combination that experts say is not being used by any other major company. The security tag's plastic wrap protects the chip, allowing reuse, and is removed at checkout.
One of the advantages is agility. Counting inventory at one of Zara's largest stores in Madrid required 40 employees and the task took five hours. Now, it needs nine people and takes half the time, according to the company.
Before the introduction of chips, employees had to scan bar codes one at a time, and these general stock counts were done every six months. Zara now counts inventory every six weeks, getting a more accurate picture of which models are selling well and which are sitting on shelves.
Each time a part is sold, data from its chip triggers an immediate order for inventory to send an identical item to the store. If a customer can't find an item, the salesperson can point an iPod camera at the barcode of a similar item and, with the data collected by the chips, check if it is available in the store, at a nearby Zara store or online.
Some early adopters saw only a limited return on their RFID investments. In the early part of the last decade, Wal-Mart pressured its suppliers to put chips in cases or stacks of products, not individual items. The project was scaled back after suppliers complained about the high cost of the technology – a problem that Inditex doesn't have because it manufactures its own clothes.
But the technology is slowly gaining fans. In the United States, Macy Inc. announced that it will expand the use of RFID tags, after tests show that they help to improve sales, margins and discounts.
Bill Hardgrave, dean of Harbert Business School at Auburn University in Alabama and a consultant for RFID, says his clients have seen sales increase between 2% and 30% after installing the tracking devices. Traditional retailers generally know where 60% of their inventory is at any one time. With RFID technology, the accuracy level is over 95%, he says.
“Zara may not be first, but when they implement a new technology, they do it so well that they catch up quickly,” says David Frink, chief technology officer at German clothing store Gerry Weber International AG, one of the pioneering retailers in the field. use of RFID chips in all products.
Source: Valor Econômico
By Christopher Bjork | The Wall Street Journal, Madrid
