Theoretically, radio frequency identification (RFID) tags were supposed to revolutionize retail. Because the chips contain information about any item to which they are attached, and can send that information to sensors in the store, prognosticators anticipated that they would change everything about retail, from purchasing to supply chain tactics to inventory practices.

In practice though, the tags have not spread as quickly as predicted, because of the difficulties associated with implementing them. For example, JCPenney found that the RFID tags interfered with its anti-theft devices. When it tried disabling its security system, thieves took advantage of the situation, and losses mounted rapidly.

Learning from such failures by other companies, the fast fashion retailer Zara claims it has found a way to make RFID work, both in theory and in practice, to improve its inventory and supply chain practices.

Because Zara manufacturers its own clothing, it can insert RFID tags into the security tags that already appear on each piece of clothing. Thus the very act of inserting the tags becomes viable, as a parallel step to the attachment of the security tags. In contrast, retailers that previously tried to insert RFID tags struggled to find efficient methods and had trouble deciding exactly when in the supply chain they should be inserted. Walmart for example demanded that suppliers add them, but suppliers balked at the added expense associated with the additional step.

In addition, by including the RFID elements within the security tags, Zara has found a way to reuse the still relatively expensive RFID technology. In previous experiments, the tags left the store with customers who purchased the related item. At Zara, employees remove the security tag as they check out customers, so the RFID chips also stay in the store, available for reuse.

These methods give Zara a distinct advantage. The task of taking inventory has become so much faster and easier—rather than actively scanning each item’s barcode, inventory takers simply walk through the store with an RFID device that passively gathers information from each rack—that Zara can perform it every six weeks, instead of twice a year, as is common in the industry. In turn, its inventory tracking is drastically more accurate, and it knows exactly what styles and items are selling best (or worst).

Discussion Question:

1. What is RFID technology, and how do retailers use it?
2. What challenges have hindered retailers from using RFID in the past? How has Zara overcome those challenges?
3. Explain how its use of RFID technology might give Zara a competitive advantage in retailing.

 

Source: Christopher Bjork, The Wall Street Journal, September 17, 2014