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Focus: RFID and Automated Identification and Data Collection (AIDC)

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From SCDigest's OnTarget e-Magazine

- Aug. 15, 2012 -

RFID News: JC Penney CEO Says Retailer Going All in on RFID, Perhaps with Significant Impact on the Industry

Strategy is More Customer Experienced Focused than Inventory; Buy Anywhere in Store, as Cash is Gone

SCDigest Editorial Staff

After numerous announcements and initiatives around item-level RFID in the apparel sector in 2011, the news has been relatively slow of late, from our perspective.

But that may change as department store chain JC Penney finalizes its aggressive rollout of RFID technology in store, with a focus as much on customer service as inventory management.

SCDigest Says:

"I believe the ticket cost, the increase in the ticket cost versus UPC label, is now at a point where the benefits way outweigh the cost of doing it."

JC Penney CEO Ron Johnson

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Walmart has been gradually expanding its item-level RFID program that began with blue jeans and some underwear categories and has now moved to other types of products.

American Apparel continues to roll out its RFID tagging program to all its stores in its vertically integrated supply chain.

Last year, Macy's announced it was planning to have RFID reading capabilities in all its stores by the end of 2012, and at about the same time a JC Penney executive told an industry forum audience that the retailer has quietly rolled out RFID in three categories at all 1100 of its US stores. Most had though Penney's was only in pilot mode with a much smaller number of stores. The executive added that Penney's hoped to have 100% item coverage within four years. (See Do JC Penney, Macy's Announcements Mean RFID to Finally Really Takeoff in Retail?).

Well, it now appears that JC Penney is dramatically advancing that schedule.

In a recent interview with Forbes magazine, CEO Ron Johnson, a former Apple retail store executive, said the company will be 100% RFID enabled across all products by early 2013.

Johnson said that "we're also doing something that no retailer has done completely... we are going 100 percent RFID with ticketing this fall." He added that "So February 1st next year, the entire Penney's platform will be on RFID tickets."

That seems to mean that all items carried by JC Penney will need to be RFID tagged by this Fall, and that they will move to RFID processing in store by early next year.

Interestingly, the main driver in Johnson's mind seems to be automating transaction processing, not just inventory management, the general driver of item-level in retail to date.

Johnson said that in parallel with the RFID rollout, Penney's is installing very high speed WiFi networks and mobile POS systems in store.

So, he said, "By the end of 2013 [our goal] is to eliminate the cash route. So you think of a physical store without a cash routing."

He added that "You go to most retail stores, all you see is people doing work to execute the retail strategy. It's stocking shelves and transacting business," saying that about 10% of its labor spend in store, or half a billion dollars a year, is involved in processing transactions at traditional POS terminals.

"That's going to all change, because of how we use WiFi, RFID, mobile checkout," Johnson said. "You'll be able to check out anywhere anytime, from anyone including yourself, because we're going to roll out self checkout to our stores next year, and it's really cool and it's really easy because it's RFID-based."

He added RFID will have big benefits for the consumer over bar coding: "You don't have to scan an item. You just throw it down and there's the price," Johnson said.

Johnson later added that the cost of an RFID tag, even at the item-level, has fallen enough that the benefits it brings can be cost justified.

(RFID and AIDC Story Continued Below)

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"RFID clearly is a technology that's been waiting for prime time based on the cost of the ticket" he said. "I believe the ticket cost, the increase in the ticket cost versus UPC label, is now at a point where the benefits way outweigh the cost of doing it."

What are the Ramifications for Retail and Consumer Goods?

Assuming JC Penney fully implements the strategy as described by Johnson, what are the impacts on the retail industry and consumer goods manufacturers?

(1) Obviously, if JC Penney's approach seems to give it a competitive advantage versus other retailers, its competitors will race to develop similar programs. What is interesting is that retailers will often invest in technology to improve the shopping experience without the kind of hard ROI needed for investments in the name of gaining or maintaining competitive advantage or at least parity.

(2) Many types of consumer goods manufacturers will need to begin tagging. While Penney's is primarily an apparel/soft goods retailer, it sells many other types of items as well (home goods, for example.) While Johnson wasn't specific on this point, his statement relative to 100% tagging implies these other types of SKU categories will need to be tagged as well.

(3) The need for many manufacturers of both soft and hard goods to begin item-level tagging would of course explode if many other retailers follow JC Penney's lead, as noted in point no. 1. SCDigest assumes these programs will be largely (but probably not exclusively) based vendor tagging, as has been the JC Penney approach in its early program efforts.

(4) The somewhat good news for many manufacturers is that they are already putting individual tags/labels on items with bar codes, pricing, etc. This means processes would not have to change much from a physical stand point in manufacturing or distribution, but that the existing tag/label will now need to have an embedded RFID chip. These are of course more expensive, and it is unclear at this point how Penney's will handle that extra expense for vendors if at all.

(5) It likely will change IT requirements, as in the need to capture (perhaps) RFID tags on outbound shipments.

(6) The issues will be amplified for goods coming from offshore, which so much of apparel and many other consumer goods are.

(7) As we've noted before, as item-level tagging become prevalent, we believe it will push its way back into case-level tagging, as happened with bar coding, which also of course started out at the item level.

This is in our opinion a major development in the supply chain that could have big ramifications for the entire consumer goods to retail channel.

What do you think of JC Penney's RFID plans? How will it impact the industry and RFID generally? Let us know your thoughts at the Feedback section below.

Recent Feedback

First off, there is little question that EPC Enabled VICS Item Level RFID technology works! Not only is the technology delivering on the anticipated benefits, but solution providers are constantly making improvements. With that as a premise going forward, JC Penney's RFID plans are solid and are sure to deliver on the promise of reducing store operating costs by 10%. Additionally, JCP will see improved consumer satisfaction, better product flow through, reduced inventory and stronger ties to their suppliers.

The broad arrary of products carried by department stores and mass merchants inherently requires a good deal of labor, given todays business practices. EPC Enabled VILRI is a game changer for all supply chain players, as well as merchants and store managment. Creativity will lead the way to increased sales and more job satisfaction. What is sometimes considered to be normal friction between buyer and seller, will be replaced with collaborative business practices, removing stress with commeraderie.

So we applaud JCP, American Apparel, Macys, Wal Mart, Jones Apparel and others who are leading the American retail industry into the future. As the VILRI Commitee stated, this will be the grandest collaborative initiative since the bar code. It's onward and upward. Check out VILRI.org for additional information on this subject.

Joe Andraski
President@CEO
VICS
Aug, 15 2012

While RFID is a mature technology/methodology, an enterprise of this scope on this timeline is fraught with peril. I like the guy; but I hope this is not a text book example of "reach exceeding grasp".

Gary Levesque
Consultant
Gary Levesque Inc
Aug, 16 2012