Since its creation in 1962, Wal-Mart has become the largest retailer in the world, with $8,90 out of every $100 spent in US retail stores spent at Wal-Mart. There are many reasons for the company achieving such success, but its culture of embracing technology has played a predominant role, says Colleen Rose, group IT director at Smollan.
Wal-Mart recently instructed 300 of its top suppliers to introduce radio frequency identification (RFID) technology into their stores this year. The push for this technology is motivated by its promise of absolute inventory control and the consequent cost reductions and margin increases. South African retailers stand to gain the same benefits if they follow suit.
RFID is not a new technology, being used since the 1940s to identify ships and planes as friend or enemy. What is new is that it is only now becoming cheap enough for application on a commercial scale. Alien Technologies' sale of 500 million RFID tags to Gillette at a cost of 10 cents per tag helps to decrease the overall cost of the technology.
Retailers gain competitive advantage based on their merchandise selection, marketing efforts, cross-selling capabilities, promotions, customer service offerings and operational efficiencies. Protecting merchandise and store property also contributes. But retailers operate in an extremely competitive market where everyone offers similar products and price, so gaining competitive advantage requires navigation along a rather thin line.
RFID offers retailers the opportunity to take much bigger steps towards outperforming their competitors. It allows better inventory management along with improved customer service. Merchandise can be better protected and more effectively displayed to encourage purchase. The impact of field marketing activities can be enhanced, shop-floor personnel more effectively employed and shelf stock better managed so as to significantly reduce out-of-stock events. Product and people visibility is generally increased.
Overall product quality can be improved as RFID tags contain information such as date of manufacture, time spent in transit, expiration date, last date of service and warranty period. The technology improves the retailer's management of stock received at the back door and increases stocktaking accuracy. Simply scanning at store entry and exit points, and combining this information with realtime point-of-sale data, stock visibility is boosted considerably.
A major reduction in competitive advantage comes about as a result of out-of-stock events. The Food Marketing Institute in the US indicates that worldwide statistics place out of stock at 8,3%, with faster sellers and promotional products at 10%.
According to the institute's research, consumer response to out-of-stock events include 9% making no purchase, 26% substituting with another brand, 31% buying the item from another store and 15% delaying the purchase. It is estimated that retailers lose 4% of their sales due to out-of-stock events. Shrinkage, resulting from employee theft, shoplifting, vendor fraud and administrative error, also eats away at a retailer's competitive advantage. According to a 2003 report by Ernst & Young, some $46 billion is lost in the US to shrinkage annually.
RFID addresses these problems by enabling retailers to reduce shrinkage and out-of-stock events by increasing visibility of the merchandise from the moment it leaves the manufacturer to the moment it exits the store in a customer's trolley as a purchased item. Tagged crates, products and shelves all contribute to increased visibility and reduced out-of-stock occurrences and theft. Scanning antenna placed strategically around the store reduces the risk of merchandise leaving the premises without a receipt.
With the likes of Wal-Mart, Gillette, Johnson & Johnson, Kraft Foods, Nestle Purina Pet Care, Procter & Gamble and Unilever all embracing RFID technology at their global headquarters, the window of opportunity is now open for South African retailers to go one up on their competitors.