RFID Speeds Replenishment
American Apparel’s recent deployment of radio-frequency-identification (RFID) tags for item-level replenishment reinforced that the technology has granular benefits that extend from the supply chain to the store shelf. More surprisingly, it showcased that RFID can be cost-justified and rolled out with relative ease and expediency.
A vertically integrated manufacturer, distributor and retailer, Los Angeles-based American Apparel has 187 stores in 15 countries including 141 stores in the United States and Canada. The company’s unique business model calls for each store to maintain one piece of every size, color and style on the sales floor at all times—that translates to roughly 40,000 items representing 12,000 to 13,000 SKUs.
In late August 2007, American Apparel began discussions to consider launching a test of item-level RFID tagging to support continuous replenishment on the store floor. By mid-October, it had selected equipment and begun implementing a pilot at the Columbia University store in New York City. On Nov. 2, barely two months after its first discussions about RFID, American Apparel began testing item-level RFID.
Zander Livingston, American Apparel’s research and development strategist and project manager for the RFID project, reported the item-level RFID system demonstrated 99.9% accuracy on inventory replenishment throughout the store. Talking with Chain Store Age, he described the two critical objectives that the recent pilot addressed.
“First we had to see if the technology would work—could it read and scan tags as clothing moved from the back room to the floor, hanging on tight racks or setting on smart tables, being picked up by customers and left lying around the store or purchased through the POS,” he said. “Second, if the technology worked—and it did—could the sales force maintain 100% occupancy of items on the sales floor. We have a lot of very similar items, and we want just one of each on the floor—but we want one of each size, style and color at all times.”
Prior to RFID, this aggressive replenishment goal had sales associates running in circles and spending excessive hours manually counting and managing inventory. The pilot showed American Apparel not only that RFID could work, but that employees could be significantly more productive because of the technology.
“By March, we were seeing a huge savings in labor,” noted Livingston. “Before the pilot, we were doing inventory twice weekly and it required four to six employees working up to six hours. Now we can maintain inventory accuracy on the floor and do inventory just once a week. Two employees walking around the store with handheld RFID readers can scan everything in the entire store in under two hours.”
Pricing was also an issue, but American Apparel found the technology to be affordable and announced in April that it would roll out the RFID inventory system to each of its 17 stores in the New York metropolitan area by the end of this month, with plans to ultimately deploy the solution across all of its locations in North America.
The company is using handheld and fixed readers from Motorola, tags from Avery Dennison, Pasadena, Calif., and an RFID software suite from Vue Technology, Lake Forest, Calif. Item-level antennas were also supplied by Vue.
“During the pilot we used a combination of handhelds, fixed readers and smart tables, although we are moving away from smart tables because they picked up [random] items,” Livingston explained. “However, by using intelli-pads, we’ve designed a way to narrow the reads. I don’t want to give away everything we did because we built some of the equipment ourselves, but the result was a replenishment report that is both live and accurate, and there are redundancy checks throughout the RFID system.”
The item-level RFID tags were applied to product as it was received at the store and removed when items were purchased at the point of sale. As American Apparel transitioned from the pilot to the rollout, the decision was made to apply the item-level RFID tags at the manufacturing facility in Los Angeles.
If customers request that the tags be removed, it can still be done at checkout. However, leaving the RFID antenna on the price label facilitates the returns process if a customer chooses not to keep an item.
“We built functionality into the system for returns so the RFID tag shows when the item was sold, the price, which store it was sold from and includes the option to return the item to inventory,” said Livingston.
Asked about potential privacy concerns, he responded, “RFID shouldn’t scare anyone—it is in no way a tracking device and can only be read from a couple of feet.” Additionally, the RFID tags would naturally be discarded when the price tag is removed.
The biggest difference in the approach American Apparel has taken, as well as the biggest challenge, according to Livingston, was that, “We wanted to build an interactive system between the RFID technology and our employees. A lot of people want to build an invisible system back in the supply chain—our system needed to be interactive.”
His suggestion for other retailers contemplating item-level RFID tags was to be prepared to “tweak” the software so that it would apply to the individual company’s business needs.
“Item-level RFID is relatively immature because tags were designed to be applied and read at the crate-or case-level in the supply chain,” Livingston observed. “With item-level tags, our system has to be able to read 20 or 30 items every five to 10 minutes. The accuracy wasn’t there with a typical supply chain [solution] because of the volume and density of product on our store floor, but we were able to design and build a system using the RFID technology that works for us.”
Michaels comps down for the quarter
IRVING, Texas Michaels Stores reported that total sales for the quarter were $847 million, a 1% increase from fiscal 2007 first quarter sales of $839 million. Same-store sales for the comparable 13-week period decreased 2.9%.
Ceo, Brian Cornell, said, “While our overall comps for the first quarter declined 2.9%, we were very encouraged with the sales of our kids and specialty craft categories, scrapbooking and frame and art supplies. Sales in April showed a reversal of trend with same-store sales up 3.1% on a strong increase in transactions. This positive sales and transaction performance gives us confidence that our new marketing and merchandising programs are connecting with our Michaels customers.”
For fiscal 2008, the company expects same-store sales growth to be approximately flat given the current economic environment.
Kirkland’s 1Q sales up 2.1%
JACKSON, Tenn. Kirkland’s reported that net sales for the first quarter ended May 3 increased 2.1% to $84.1 million from $82.3 million for the first quarter ended May 5, 2007. Comparable-store sales for the first quarter of fiscal 2008 increased 4.3% compared with an 18.8% comparable-stores sales decrease in the first quarter of fiscal 2007.
The company reported a net loss of $2.6 million, or 13 cents per diluted share, for the 13-week period ended May 3, 2008, compared with a net loss of $7.5 million, or 38 cents per diluted share, in the 13-week period ended May 5, 2007.
Robert Alderson, Kirkland’s president and ceo, said, “The first quarter results reflect strong merchandising execution and the benefits of aggressive financial initiatives that have reduced our operating costs, improved cash flow and strengthened our liquidity. During the quarter, we experienced improved customer conversions as shoppers have reacted very favorably to our merchandise mix. The positive comparable-store sales and trimming of unproductive stores led to leveraging of occupancy and distribution costs. Combined with an improvement in merchandise margin and a year-over-year reduction in operating costs of almost $5 million, we were able to post a significant improvement in our pre-tax results.