RFID technology enables Retail 4.0
The world of Retail is changing, the consumer behaviour evolving. Technologies such as RFID enable Retail 4.0 and play a key role in shaping new and innovative retail models that focus on an enhanced shopping experience and on satisfying the customers’ growing needs for convenience, flexibility, and product availability.
For more than a decade Retail has been driving RFID adoptions, mostly because of its known benefits for improving inventory accuracy and out-of-stock, reducing costs and losses, and improving store and overall retail operations.
Today, according to Antonio Rizzi, Professor of Supply Chain Management at the University of Parma and author of the book Supply Chain - Fundamentals and Best Practices to Compete by leveraging the Network (Springer, 2022), retailers are discovering new ways of using RFID to forge new customer relationships, drive sales, enhance strategy and develop cross-channel selling opportunities. The technology brings innovation to the industry by enabling new frictionless retail models such as unmanned stores, self-service cabinets, and automatic home replenishment methods.
What is Retail 4.0
Retail 4.0 refers to the digital transformation of the retail industry also characterized by completely new retail models based on the technologies of the Industry 4.0 such as Artificial Intelligence, Big Data and Cloud Computing and the Internet of Things enabled by RFID.
Shoppers still gratify a physical shopping experience, but it needs to be fast and efficient, just as shopping online. Ensuring that the checkout experience is fast and accurate and that the products are available (in the right variant, size etc.), is crucial to customers when they enter a shop (whether in-store or online).
The goal of Retail 4.0, where brands combine different sales channels and marketing strategies, is to make the shopping experience increasingly simpler, smoother, and unmanned. In his recent book, Professor Antonio Rizzi thoroughly explains how RFID technology significantly helps satisfy the changing purchasing methods and customer needs taking retail to a completely new level.
Unmanned stores are unattended stores where the customer can enter, buy the product, and exit very quickly without long queues at the cash wrap.
Amazon Go, stresses Rizzi, is an unmanned store model based on computer vision and artificial intelligence. In this case products and customers are recognized thanks to artificial intelligence and a complex camera system making it possible to distinguish what is either taken or dropped from the shelves, by whom and then automatically calculate and debit the transaction. This is a very sophisticated system capable of distinguishing one product from the other except when the products look exactly the same but differ in for instance model or size. It is therefore suited for convenience stores, while managing transactions in apparel and other retail environments where products look the same may be critical. Furthermore, investments related to artificial vision and intelligence are high.
In unmanned stores enabled by RFID, the products are equipped with RFID tags, that can be read by fixed or mobile RFID equipment, providing fast self-checkout and quick and accurate (nearly 100%) inventory counts. Thanks to self-checkout systems enabled by RFID, the technology furthermore allows to streamline the purchase process and eliminate queues at the check-out. This significantly increases the service level and the customer satisfaction.
RFID technology gives retailers several options for improving stock visibility making it easy to run inventories for both the sales area and the storeroom. This helps to prevent the out-of-stock phenomenon (OOS) where the product is present in the back of the shop but not on the shop floor and therefore needs to be replenished. In a traditional store, sales staff carry out restocking a few times a day, while in Retail 4.0 a system generates an alarm whenever a product is not on the shelves allowing for immediate replenishment.
Rizzi stresses how important studies carried out by the RFID lab at the University of Parma (Bertolini et al. 2012) have shown that significant increases in turnover can be achieved thanks to the reduction of OOS through RFID technology.
Another benefit, listed by Rizzi, is waste reduction. With each item acquiring its own unique identity, the products can be sold based on their expiry dates. Items close to expire can be automatically recognized and discounted leading to an optimization of the stock and a reduction of expired products.
Given the important benefits in terms of inventory accuracy, self-checkout and waste reduction, the Japanese Ministry of Economic Development METI launched a programme built around RFID technology, that aims to transform more than 70.000 convenience stores throughout Japan into unattended shops 4.0 by 2025.
In RFID enabled unmanned stores capital expenditures related to store equipment are low, while on the other hand, operational expenditures for product tagging can be quite significant.
Self Service Retail
Another example of a Retail 4.0 model based on RFID technology is the Smart Cabinet, able to keep current stock under control in real time, automatically calculate what the consumer withdraws, and charge for the consumption.
Smart Cabinets can, for example, be RFID Smart displays, such as those installed by Havaianas in the US, that enable automatic vendor-managed inventory (a-VMI) through product scanning, automatic inventory counting, and Google ads that direct online shoppers to nearby physical retailers stocked with desired products.
Another example is Intelligent Refrigerators, as in the case of FrescoBreak, an Italian start-up that has installed a series of smart fridges in strategic locations such as offices or high-density transit points. The refrigerator offers a wide variety of healthy, high quality and ready-to-go meals.
Each fridge is an RFID device capable of constantly inventorying the products and transmitting data on consumption. Thanks to a Cloud system, on which a Business Intelligence dashboard runs, the company can monitor the entire supply chain process, from sales to replenishment, while also managing marketing initiatives (in relation to an individual fridge, individual reference, or single item).
Thanks to real-time control of each individual refrigerator, the use of dedicated discounts in the case of products close to expiring and the elimination of out of stock, the smart fridges allow FrescoBreak to reduce food waste while increasing its service level and offer.
In fact, the smart fridge makes it possible to push out personalized product communications and discounts (visible directly on the display of the fridge) based on the single customer’s consumption habits enabling cross-selling and up-selling.
An example of a Smart Van, notes Rizzi, is represented by the Californian start-up Robomart that combines RFID technology with Artificial Intelligence, Computer Vision and Autonomous driving technologies. The van is stocked like a small convenience store, or like a small pharmacy with over-the-counter products. Customers can book the van through an app, the vehicle brings the products to their location, opens the door and the consumer can pick the products she/he wants and the bill is automatically charged to the customer account/credit card. An RFID tag is attached to each product (providing it with a unique ID number) and the vehicle is equipped with fixed readers. When the item is removed from the van, it is registered by the system. Important, stresses Rizzi, is that the software provides analytics regarding sales and consumption patterns allowing to stock the Robomart accordingly.
Automatic Home Replenishment
Automatic Home Replenishment (AHR) is, according to Rizzi, the ultimate evolution of the concept of e-commerce towards a retail model where the replenishment of products happens automatically based on the consumption in the costumer’s home.
The idea of automatic home replenishment is that, thanks to RFID technology (tags applied to the single products, software, and appliances), the products are automatically refilled whenever a specific product is finishing (for instance when the last product is being taken from the self) without the customer needing to take any action.
These models exploit RFID technology through appliances and rubbish bins and/or smartphones enabling automated replenishment services for domestic products. The AHR systems make it possible to register the daily consumption, charge for product consumption, automatically replenish products and optimize the product consumption based on target parameters such as cost and nutrition facts.
In this way costumers can have a real-time overview of the products available in their household or for instance in the office, the products that will be ordered and when/where/how they will be delivered. Retailers can on the other hand keep track of product availability in real-time anticipating the household’s or office’s future orders and in this way optimize their product management.
“Our grandsons and daughters will likely laugh at us when we tell them the way we were used to buy online. Open an app, select products, and have them delivered home”, Rizzi comments.
The future of Retail relies on technology
RFID technology can be extremely valuable for retail stores, not only for inventory accuracy and as a cost reduction tool, but also to enhance customer experience, develop new operating models and increase sales. Thanks to RFID technology, shopping will be faster, frictionless and smother, and therefore more frequent.
As the customers’ shopping needs evolve, shop-owners update their sales strategies and develop innovative retail models to propose whole new ways of shopping. Technology, such as RFID, plays a pivotal role in this transformation offering break-through innovations and important opportunities that retailers cannot afford to ignore.