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RFID ups operational efficiency in Japan department store

Posted: 30 Jul 2007 ?? ?Print Version ?Bookmark and Share

Keywords:RFID tags? department store operation efficiency? RFID technology?

By Jeroen Keunen
NXP Semiconductors

How does a retailer increase productivity and profitability while facing an increasingly competitive market?

Over the past two decades, most large retail chains have mastered the supply chain, efficiently implementing stock controls and goods handling procedures starting with their merchandise suppliers all the way through the chain until the products hit the shop floor. In fact, the use of RFID technology, a relative newcomer to the industry, is already an accepted and integral part in many supply chain operations. Retail powerhouses such as Wal-Mart in the U.S. and Metro in Europe are good examples of what the industry can achieve in value and cost savings through RFID.

If a department store turns to RFID technology to improve its operational efficiency, how can it be best deployed and what can the store expect to achieve on a practical level? For Mitsukoshi's flagship department store in Nihombashi, Tokyo, the management set two goalsto create a department that improved service by cutting down on customers' waiting time and to catch sales that are lost when the department runs out of its most popular products.

Employing RFID
The rationale behind Misukoshi's initial decision to introduce RFID technology into its operations was very practical. Department stores worldwide are fighting an increasingly tough battle for customer loyalties. On major cities everywhere, shoppers can find everything from haute couture flagship stores to major discount chains offering a huge array of product choice. Given such, department stores must improve their cost performance and the services they offer to attract and retain customer loyalty.

In the case of Mitsukoshi, the supply chain had already been made very efficient. In 2004, the store management embarked on a program to introduce RFID tags to merchandise through a trial in the women's shoe department. The department was chosen for the RFID implementation because it kept customers waiting the longest and it was also where the popular sizes and/or colors of shoes ran out most often. The project aimed to make use of RFID to provide customers with a more personalized and hassle-free shopping experience, while allowing them more direct contact with the shop assistants.

Figure 1: Mitsukoshi used RFID tags similar to the size of their existing merchandise labels that can be effectively read up to 1m.

Typically, one of the biggest problems facing shop assistants at any women's shoe department is that they generally only have POS data to judge if shoes are in stock. POS data is helpful but it does not give the complete stock data in the store because it shows only what has been sold. Since Mitsukoshi's system was not active in real time, it did not indicate where the stock was located thus, customers were kept waiting while the staff manually searched through all of the shoes in the stock room.

On a store-wide average, Mitsukoshi had a non-stock ratio (the percentage of stock that is sold-out or otherwise unavailable) of between 4-8 percent. This figure varies per season. In the women's shoe department however, the problem of non-stock is sometimes considerably higher which means that many potential sales are simply lost. One of the unique aspects about doing business in Japan is that land is at such a premium that it becomes necessary to have a much higher sales turnover per square meter of floor space than in other countries. For example, stores in Japan must sell about 7.5 times the amount of goods per square meter as their U.S. counterparts. The problem is compounded because Japan customers expect very high levels of quality and service, while being able to enjoy a rapid turnover of new stock each season. It is a very labor intensive and expensive process to constantly be renewing stock. And due to comparatively limited storage space, Japan retailers face the added problem of carrying a minimum of stock on site while ensuring that they don't run out of the merchandise that customers want. This is quite a balancing act.

A particular problem faced in the women's shoe department at Mitsukoshi was that sales clerks were spending a large amount of time in the stock room or traveling back and forth from the floor to arrange stock, look for stock or carry out stocktaking and other back-end duties. This is when we turned to the idea of empowering our customers. The department decided to tag all of its stock with RFID tags and allow customers to find the shoes in the sizes and colors that they wantedall with great accuracy and in real time. This reduced the number of trips that staff needed to make to the stock room, and greatly increased the amount of time that could be spent directly with customers.

To avoid any confusion among its customers, Mitsukoshi decided to use RFID tags similar to the size of their existing merchandise labels. Because these tags are roughly half the size of equivalent RFID tags, the distance that the tags can be effectively read was reduced to 1m and between 15-20cm using handheld terminals. But with most shoes being sold directly in the original box, the store could have the boxes tagged with easily removable tags rather than tagging the shoes themselves. This meant that the majority of the stock could be tagged at the very beginning of the supply chain, and only the stock earmarked for display purposes had to be individually tagged.

Trial gets green light
When the trial kicked off in October 2004, Mitsukoshi's management educated the staff on the use and benefits of the designed kiosk terminals which contain the RFID reader. At first, the staff was conservative about their expectations as to how customers would react, particularly because they felt that the act of searching for shoes was a valuable part of customer service. Customers, however, quickly discovered the benefits of the system and put any concerns well and truly to rest.

Figure 2: To use the system, customers simply had to place a pair of the display shoes on top of one of the kiosk terminals in the department.

The system was designed to be easy to use so customers simply had to place a pair of the display shoes on top of one of the kiosk terminals in the department. Dong so allows them to instantly see a visual display of what sizes and colors were available. Customers were also delighted to find that they could search for similar styles, colors and sizes, saving time and greatly reducing the hassle of finding their desired pair of shoes.

Over the two month trial, the staff increasingly relied on the RFID-enabled system when they saw first hand its ease of use and 10 percent increase in sales. With the new system enabling time savings, a staff's average time spent with a customer dropped from 14mins to 6mins, while staff time was also freed up to show customers an average of more than three different pairs of shoes, compared to less than two pairs without the system in place. The trial proved to be a success in achieving its objective.

After the trial, Mitsukoshi is now deploying the system at its other stores in Japan including Ginza, Fukuoka, Sapporo, Sendai, and the Nagoya Sakae and Nagoya Hoshigaoka.

"The shoe department is now able to provide up-to-date information to our suppliers so they are aware of what stock is most popular with our customers," said Masakazu Nishida of Mitsukoshi's Nihombashi store. "Not only have these tags helped us increase sales, they have also made our entire system of stock replenishment much easier and have definitely brought our 300-year old business into the 21st century."

About the author
Jeroen Keunen
is the APAC regional marketing manager for Identification at NXP Semiconductors.

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