ORIGINAL SOURCE: RFID 24-7 http://www.rfid24-7.com/article/2671/

OUT-OF-STOCKS: AN XL PROBLEM FOR APPAREL RETAILERS

AUGUST 29, 2012

Early this year I blogged about my shopping experience at a Clark’s retail store in Massachusetts. At the time I figured that the chain’s inability to quickly locate inventory in its back room was costing Clark’s up to $15 million a year in lost sales.

I never thought I’d come across an example that screamed for item level RFID more than the need for Clark’s to gain better visibility into its back room inventory, but the Champs Sportschain has trumped my experience at Clark’s.

Out-of-stocks seem to be a common occurrence at the 552-store retail chain, and could be costing the retailer more than $6 million in lost sales from t-shirts alone.

Shopping for a birthday gift for a teenage nephew recently, I came across a Derrick Rose t-shirt, who so happens to be my nephew’s favorite basketball player. The perfect gift!

To my dismay, the six shirts remaining on the Champs sales floor were all size XXL. That’s right — no small, no medium, no large, or no extra large. By not deploying item level apparel tagging, one of the largest mall-based specialty athletic footwear and apparel retailers in North America is missing a major selling opportunity.

Out-of-stocks average about eight percent for retailers in general, although the rate is higher for specialty apparel retailers because their depth of SKUs is typically less than large retailers.

The particular shirt I was interested in retailed for $30. Figuring that four customers were likely turned away that day because their size was not available, that’s $120 in missed revenues for that single shirt — for one store.

Intrigued by this, I began to check some other shirt styles. I came across another SKU that only had XXL in stock, adding another $120 or so in lost revenues due to an obvious case of poor inventory visibility.

I am sure that this problem is not unique to the Champs store in Braintree, Mass., where I was shopping. According to the Champs Sports web site, the retail chain operates 552 stores in the U.S. and Canada.

Assuming that the chain’s inventory visibility is poor chain-wide, and that the out-of-stock issue is commonplace across all stores, some simple math suggests that the retailer lost $66,240 in revenue in one day from one SKU (552 stores x $120). I was unable to determine how many SKUs Champs stocks, but the store is notorious for its large selection of wildly popular sports shirts and apparel items.

If the Derrick Rose t-shirt out-of-stock problem was repeated at just 10 other stores (remember, I found two out-of-stock SKUs in minutes), the lost revenue jumps to more than $660,000 chain-wide. Increase the out-of-stock problem to the 100-store level and you’re potentially looking at $6.6 million in lost revenues from a single SKU!

Bill Hardgrave, the dean of the College of Business at Auburn University, says that the retailer likely lacked depth for the Derrick Rose SKU or it wasn’t merchandised properly. “What you experienced is not at all uncommon,” says Hardgrave, “especially in the apparel side, where out-of-stocks are even more common. Some specialty retailers will only have one or two items of a particular color or size on the floor. Then the out-of-stocks get exaggerated because if somebody buys that large and the system inventory is inaccurate, then they don’t even know that they don’t have that size on the sales floor any more.”

Here’s the scary part: if the out-of-stock issue is out of control for t-shirts that sell for about $30, imagine the lost revenue on the sneaker side of the equation, where some brands at Champs retail for as much as $250, like the Nike Hyperdunk+ high-tech sneakers that track how high you jump and all sorts of other data.

If just one size was out-of-stock for a sneaker at that price level across all 552 stores, the lost revenue would equal $138,000. Certainly, Champs must see the value of placing an RFID tag on a $250 pair of sneakers.

Hardgrave, who is also the founder of the University of Arkansas RFID Research Center, says that specialty stores like Champs and Clark’s are expected to be the next big adopters of item level tagging. RFID can be an immediate fix for out-of-stocks caused by poor store execution, meaning that items are in the store, but not on the store shelf. Hardgrave says that 30 percent of out-of-stocks are caused by store execution, while 70 percent are caused by supply chain issues.

“The most immediate thing RFID can help is the store execution part of the problem,” says Hardgrave, “when it’s in the back room and nobody realizes it. That’s exactly why Walmart and others are using RFID to tag jeans and other items. They can go out on the sales floor every morning with handheld and cycle count everything on the sales floor in a few minutes, and the application will say there are six SKUs that are in the back room but are not represented in the count you just took on the sales floor. Therefore you make sure that those SKUS are a priority because they are not on the sales floor. RFID fixes that problem immediately and completely.”

While action at the department store level is strong, specialty retailers like sporting goods stores or specialty apparel boutiques are honing their item level tagging strategies, which can vary strongly from large department stores.

“While some department stores roll out store by store or by product category, the specialty store strategy will be to tag everything,” Hardgrave told RFID 24-7 last month.

“They can do that much faster than a major department store can,” since a specialty retailer might carry between 15,000-35,000 items. “They will tag everything and roll out chain wide. On one hand it’s a simpler model, but it also requires much more due diligence on the front end because you are not just rolling out one or two categories, but hitting the entire store.”

Meanwhile, retailer American Apparel remains bullish on RFID. In its earnings report released earlier this month, the troubled retailer identifies RFID as a major part of its turnaround plan.

American Apparel, a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its second quarter ended June 30, 2012 on Aug. 14.

In its earnings report, American Apparel said that about half of its 251 stores have deployed RFID technology. It identified RFID as one of the more significant tactics the company is employing to improve sales and profitability, including implementing tighter inventory management systems enabled by the technology.

American Apparel’s RFID-enabled stores operate at a 99.8 percent inventory accuracy rate, almost unheard of for an apparel chain with such varied SKUs. That could easily contribute to the double-digit sales gains that are mentioned in the earnings report.

This April, the chain announced that RFID had an unexpected side effect. By attaching UHF tags to about one million pieces of apparel a month, American Apparel has reduced shrink by an average of 55 percent. Some locations curtailed theft by as much as 75 percent.