American Apparel took the dive and adopted RFID – You won’t believe their R.O.I!
Currently, retailer adoption is being driven primarily by one of the 4 factors below;
1. Shrink/loss Control
2. Inventory Accuracy (average accuracy in retail is 60-70% vs 99% with RFID)
3. Enable “omni-channel” strategy to streamline the ship from store process.
4. Sales Floor replenishment
With shrinkage costing Australian retailers an estimated $7.5 billion per annum, loss prevention professionals are looking for the latest trends and technologies that will assist them with mitigating external and internal loss to optimise their organisation’s profit margins.
As protecting assets is becoming a key factor in maximising retailers’ profitability, the scope of loss prevention is evolving from being a unique discipline to a cross-functional concern integrated from senior management to operational levels.
Item level RFID tracking provides accurate and up to date information on the flow of inventory to the point of sale and enables retailers to dramatically enhance visibility which leads to increased efficiency and cost reductions.
Ramp recently hosted an interactive lunch with Stacey Shulman, the former CIO for American Apparel (currently the Senior Vice President of Zensar’s global retail practice) for selected Australian retail clients, to share insights into innovative ways to manage inventory, reduce loss, and improve profitability and overall customer service, through the use of RFID.
American Apparel is one of the few clothing companies in the West that has bucked the trend: instead of moving production offshore, the vertically integrated manufacturer, distributor and retailer of casual clothing has kept all operations in Los Angeles.
With a California workforce of approximately 5,000 people, American Apparel is not only the largest garment manufacturer in North America, they might also be the only American company to manufacture in the U.S. and sell through their own retail outlets in China.During Stacey’s time at American Apparel, she led initiatives to drive lean manufacturing improvements and automation throughout the vertically integrated retailer.
She also managed the implementation of innovative technologies such as item level RFID, Augmented Reality mobile apps, Video Analytics, Big Data and web personalization.Stacey discussed how they implemented the RFID technology, their key challenges, the obstacles they faced and the ROI they gained from making such a major change to their business process and operations. The key intakes are detailed below.
A Retailers Worst Nightmare!
The primary tangible asset of a retail business is inventory. One of the key factors in failure of retail businesses is lack of inventory management and /or poor buying.American Apparel had long used a barcode scanning system at point of sale to trigger a replenishment of inventory from the stockroom. But as it was a manual, paper-based system requiring physical counts, replenishment only occurred twice per week.Even so, it still involved manual item counts and an average of 240 man-hours per month.
– The key challenges they faced were
– Inability to adopt to shifting consumer trends
– Poor working capital management
– Poor buying practices and inventory control
– Inability to benefit from e-commerce and social media
– How to take advantage of emerging markets
– Inability to control costs/rising input prices
– Managing foreign exchange risk
RFID – A Knight in Shining Armour
We all know that “Omni Channel” is at the top of most retailer’s priority lists. At the heart of the omni-channel efforts is an integration and data unification challenge.
In addition to consumer demands for a unified shopping experience, they are also looking for personalized engagement from the brands they shop thus putting more pressure on the retailers to innovate faster than they have in years.
All this adds up to a need for retailers to take another look at their Enterprise Architecture so that they can better leverage existing technology investments while still keeping pace with the fast changes that are in demand.
Security is another major challenge in the retail landscape today. With news of the major data breaches, along with newly discovered vulnerabilities in best in class hardware and software, security is getting pushed out from the background and tasks to becoming part of a company’s disaster recovery and business continuity planning.
American Apparel turned to RFID to enable them to counteract these issues.
Obstacles along the way
Stacey identifies the following as major obstacles they faced when they implemented RFID;
We did not have anyone to follow. No best practices existed so we had to learn the hard way, by stumbling through it with our vendors who were also learning.
We were caught unprepared by the amount of business process change that would be required.In hindsight now, we should have known that any process automation requires business process change, but somehow we did not view RFID as a process automation solution so we were unprepared.
Both RFID hardware and software were in their early stages and were not great. We really suffered through the growing pains with our hardware vendors. (RFID hardware today is so much more reliable).
Internally, it was a constant re-justification of the decision to go to RFID because we did not have other success stories to point to.
RFID – The clear winner!
It took a while to overcome all the initial obstacles they faced, however when they finally did, you could see the clear trend in sales going up, shrinkage & costs going down and achieving their ROI in 6 months!
– Better managed stores with low shrink, high in stock ratios and excellent inventory accuracy resulting in higher sales typically in a range from 2-12%
– Improved inventory accuracy: 99.8% accurate (Inventory in our RFID stores stays within a .2% variance)
– Improved replenishment: out of stocks are under 1% (on average)
– 100% shipping accuracy on every order due to item level audits
– Over 15-20% reduction in overall inventory foot print
– Fuller sales floors: average time to sales floor when an item is sold is under 10 minutes. In non RFID stores this is not measurable
– Online sales increased by reduced threshold
– Greater store management accountability
– Reduction in shrink (average reduction of 50-55%)
– Lower staff turnover and reduction in labour
– ROI in less than 6 months.
Shulman is impressed. “You could say that we’re pleased with our investment, yes. Going into our initial pilot, we hadn’t anticipated quite such a quick payback.”American Apparel’s experience is positive proof that RFID technology can act as a catalyst to drive lower costs, enhance supply chain productivity and deliver greater customer satisfaction!
How Ramp can help you get your ROI
RAMP’s team of experienced project managers and highly trained engineers are organised to assist with all aspects of item level RFID deployment; from consultation and conceptual design through to installation and system support. Call now to learn how you can apply RFID within your business to reduce shrinkage, loss, improve your inventory accuracy and achieve higher ROI.