Retail inventory accuracy – an industry in denial?

In my last post, I looked at the bigger picture of whether 2017 will be the year that RFID takes-off in fashion retail. In this post, I focus on the individual retailer, and the first hurdle an RFID programme will have to clear to receive funding – does the organisation believe there is a need for it? I’ll begin with a well-known mantra from no less than the Alcoholics Anonymous…

The first step to recovery is admitting you have a problem

I’d argue that this statement is as true of inventory accuracy as it is of a fondness for drink. There are several different ways to manage inventory accuracy without using RFID, the most common being a manual count.

Typically, a clothing retailer performs a store audit once or twice a year, physically checking all stock across the estate. Some argue that through human error, this process creates as many inaccuracies as it fixes – nobody’s perfect after all! Once the count is completed, store managers cross their fingers, hoping they’ve hit their shrinkage targets and loss managers brace themselves for a nasty shock as stock adjustments are fed in across the company. After which, barring any serious anomalies warranting further investigation, normal service resumes, inaccuracies creep back in and in 6 or 12 months, the cycle repeats itself.

When we speak to retailers not using RFID to manage inventory, they will often say, “inventory accuracy is not an issue for us.” But we’ve generally found this more likely to mean inventory accuracy is not an obvious issue – but it is still present. There are plenty of cases where individuals in the business would prefer not to see the true state of their inventory. After all – out of sight, out of mind…

See the impact of your ways

Given the limited options to improve inventory accuracy in a non-RFID world, failing to acknowledge the issue is probably the biggest cause of retailers not addressing it. But we believe it is vital for retailers to shift this perception of inventory accuracy from a loss protection issue to being something that underpins how effectively the business trades – something that cannot be ignored.

Store stock positions drive what is replenished to each store. Therefore, there is a direct link between inventory accuracy and maximising sales opportunities. Newer systems may flag some discrepancies to merchandising teams (e.g if store stock exists but no sales are recorded for X days), but this still requires human intervention as well as head office and stores working together to resolve the issue quickly. But even if this works in practice, isn’t it just treating a symptom? To have a greater impact on improving availability, sales and markdown KPIs, retailers need to get to the cause of the discrepancies.

At GS1 UK, we’ve found that a reasonable litmus test for how comfortable retailers truly are with their inventory accuracy is to probe into their customer offerings. For instance:

• Would they display the last item for sale online?
• Is a click and collect item made available from the local store?
• Would they fulfil an online order from store?

These business processes rely on very high stock accuracy levels and there are very few examples of where this is done effectively without RFID – and these tend to be in retail environments where stock and customers are kept separate, footwear and Argos!

Resolve to make a change

Getting inventory accuracy right sets retailers onto a “virtuous circle” into what is at the heart of every retail business – trading stock.

1. Replenishing right – optimises opportunity for sales by improving availability both in-store and online
2. Planning right – allows merchandising teams to see the true sales potential of the assortment and reduce the cover stock required
3. Buying right – buying quantities can be reduced while delivering the same sales and achieving greater full price sell through. This reduces working capital and frees up cash to buy back into top sellers or make other investments to the offer

The road to recovery

I admit, it isn’t all plain sailing to get on the virtuous circle of stock management. However, the benefits are achievable. All the technology’s adopters in the UK cite a minimum of 95% inventory accuracy from various starting points. This has led to a similar level of performance for on-shelf availability, i.e. avoidance of stock in business but not on shop floor. These are figures that would simply not be possible in most non-RFID businesses.

In the next article in our series, we’ll lay out some different RFID deployment options to help you understand what might work best for your organisation.

And if you have any questions, get in touch with me – james.osullivan@gs1uk.org

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