Thinking Outside the Bulk-Food Bin

By Jordan K. Speer — January 01, 2013

If you follow the topic of RFID in the apparel industry, you’re likely familiar with American Apparel’s story. Last February, after several years of conducting trials of item-level EPC Gen 2 passive tags and readers at select locations, the company announced that it would install the technology at all 280 of its retail stores worldwide.

American Apparel’s system, which employs the RFID tags at the point of manufacture to track every item as it enters the store, moves to the sales floor and then is purchased at the point of sale (POS), proved exceptionally valuable in increasing inventory accuracy, reducing internal shrink — and increasing sales.

The kind of what-where-when visibility that RFID enables gave American Apparel insight into some things it hadn’t previously even recognized as problems. For example, prior to RFID, the company was unaware its sales-floor replenishment was often very slow. At the boutique-style retailer where only one or two of each SKU are available on the floor at any given time, this was particularly detrimental to sales.  “Now we know exactly how much time has elapsed from the time the item is sold to the time [a replacement is] back on the floor,”says CIO Stacey Shulman — these days that’s about five minutes.  “Previously, we had no idea of the extent of the problem,” she said, adding that comp sales picked up 20 percent right around the time it gained that visibility, but will not specifically credit the technology with the increase.  “If it’s in the back room but not on the floor, it’s still out of stock to the customer.”

At our recent 2012 Apparel Executive Forum where she led a workshop on the topic, Shulman said RFID had enabled a 99.8 percent in-stock percentage at stores where the technology is in place. In other words, almost 100 percent of its stock is available for customers to purchase. The ability to view where each garment is at any time solves  “accountability breakdowns,” says Shulman. The company can see when a garment is moving from backroom to sales floor. It will be able to see when a garment leaves the building (in early 2013), which  “will make drivers and box packers more accountable. When a box leaves the distribution center, there will be certainty that the items were accurately packed so there will be enhanced accountability on the drivers  and the people who receive the merchandise in the store. Missing pieces can be attributed to a very specific part of the supply chain.”

As the retailer has expanded its usage of RFID, its understanding of its potential of the technology also has grown. American Apparel found that RFID was a pivotal tool not only in store management, but shrink management as well. At the time of its announcement last February, stores using RFID had seen shrink drop on average by 55 percent. Putting an RFID tag on each and every item reduces shrink by eliminating problems due to human error such as mistakes made during receiving, and also by making it more difficult for employees to steal without getting caught.

But RFID did more than just effect a behavioral change — the technology allowed a cultural change, said Shulman. Interestingly, she said, the company found that the item-level RFID tags changed the way employees viewed merchandise.  “If you’re measuring something, it elevates the value of it in your employees’ minds,” she said. Shulman likens this to bulk bins in grocery stores. “Can you imagine a customer tearing open packaged goods and eating them in the grocery store? They never would. But those very same people may not think twice about reaching into a bulk-food bin for a sample.”

Whereas the employees had regarded t-shirts essentially as bulk-food items, says Shulman, seeing them as individual items, important enough to be measured and counted, gave them an elevated status.  

That’s a subtle but significant shift, and it makes me wonder — what other shifts in technology, process, product and strategy would make a significant, and perhaps unexpected, impact on employees, customers and businesses? What unpredictable outcomes will result as the forces of social, mobile, cloud and IT increasingly come together?

As you look to invest in technology in 2013 — our annual Tech Trends Report reveals 41 percent of those apparel companies surveyed plan to increase their IT budgets this year, with a heavy focus on supply chain planning — remember that it can provide opportunities extending far beyond improved processes and efficiencies to cause people — employees and customers alike — to think differently about your enterprise and the products and services you offer.  


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