Radio frequency identification (RFID) chips are small chips that can convey information to a reader even if the reader does not have a direct line of sight to the chip. If a veterinarian ever convinced you to put a chip in your dog just in case Fido wandered off, you have in your house. In the retail industry, RFID chips have long been held up as a godsend — the fast track to more accurate inventory records updated in real time. Or at least they were ten years or so ago. But since then there have been challenges with costs as well as the underlying technology. Now, however, it appears a major retailer, Zara, is taking the plunge into RFID in a big way (Zara Builds Its Business Around RFID, Wall Street Journal, Sep 16).
By the end of this year, more than 1,000 of the 2,000 Zara stores will have the technology, with the rollout completed by 2016, Mr. Isla said.
The scale and speed of the project is drawing notice in the industry. The Spanish retailer says it bought 500 million RFID chips ahead of the rollout, or one of every six that apparel makers are expected to use globally this year, according to U.K.-based research firm IDtechEX. …
One benefit was on display on a recent morning, when store manager Graciela Martín supervised inventory-taking at one of Zara’s biggest outlets in Madrid. The task previously tied up a team of 40 employees for five hours, she said. That morning she and nine other workers sailed through the job in half the time, moving from floor to floor and waving pistol-shaped scanning devices that beeped almost continuously while detecting radio signals from each rack of clothing.
Before the chips were introduced, employees had to scan barcodes one at a time, Ms. Martín said, and these storewide inventories were performed once every six months. Because the chips save time, Zara carries out the inventories every six weeks, getting a more accurate picture of what fashions are selling well and any styles that are languishing.
This all raises the question of whether there is any reason to believe that it will be different this time. That is, is there any reason to believe that Zara’s implementation of RFID will be more successful than other big retailers who have gone done this road?
The article suggests a couple of reasons why Zara may be more successful than past efforts. In effect, they may have found ways to address two of the biggest problems with using RFID in retail, the cost and the split of the reward. On an absolute level, the cost of an RFID chip isn’t that much. One often hears number quoted in cents per chip. But if you start thinking about putting a chip on every T-shirt or jug of Tide going through Wal-Mart, that adds up to real money. On top of that, there is the cost for readers and such. Cost concerns were one of the reasons that Wal-Mart had its suppliers tag cases or pallets instead of individual items.
Zara is mitigating the cost issue by reusing the chips. It put the chips on its security tags which are removed before the customer takes an item home. Reusing the chip should be fairly easy since they are relatively more vertically integrated than most apparel retailers. They do not have to worry about sending back the correct chip to the right supplier.
Vertical integration matters also for the second challenge. A firm like Wal-Mart might like its suppliers to commit to using RFID chips in a big way so Wal-Mart can make use of the technology in its distribution centers and stores. That is, the retailer wants the supplier to invest so the retailer can benefit. No wonder suppliers haven’t always been excited about the programs. Zara, however, doesn’t face this hurdle. While they have to bear the full burden of the investment, they get all the reward.