Radio-frequency identification technology is a way for retailers to identify items using radio waves. It transmits data from a RFID tag to a reader, giving you accurate, real-time tracking data of your inventory.
With supply chain visibility and inventory accuracy becoming more important, RFID has gone from “nice to have” to foundational for today’s omnichannel retailers.
With RFID, retailers can automate their inventory data and improve accuracy by 30%, while reducing out-of-stock situations by 50%
RFID technology and its counterparts, like Near Field Communication (NFC) and Bluetooth Low Energy (BLE), are reshaping the retail landscape. As logistics, inventory, and fulfillment find ways to improve processes using RFID, increased adoption continues to lead to more innovation.
Want in on the action? Learn how RFID technology works, its advantages for retailers, and how you can use RFID technology in your store.
Table of Contents
What is RFID technology?
RFID is a wireless technology made up of two main parts: tags and readers. The reader is a device which has one or more antennas that send and receive electromagnetic signals back from RFID tags. These tags, which store a serial number or cluster of information, use radio waves to send their data to nearby readers.
RFID belongs to a group of technologies called Automatic Identification and Data Capture (AIDC). You can use AIDC tools to identify items, collect data about them, and send that data to a computer system with little to no human interaction.
For retailers that need to track stock accuracy, a RFID system that integrates with your inventory can increase efficiencies significantly. You can use it to improve inventory accuracy and visibility to create better shopping experiences for today’s omnichannel shoppers.
Leveraging smart technology, such as RFID, is critical to success in the age of retail transformation.
Research suggests that RFID will support emerging technology and the overall digital transformation of retail. In 2020, the Auburn University RFID Lab, in partnership with GS1 US, completed a proof-of-concept that shows how blockchain technology and RFID can improve serialized data in retail.
The study, titled Chain Integration Project Proof of Concept (CHIP), confirmed that retailers could share product data encoded in RFID tags on a blockchain network. It demonstrates that automating serialized product data exchange can eliminate the need for human audits and inventory counting, which could increase the productivity of supply chains.
How does RFID work?
RFID systems have three components that make them work: an antenna, a transceiver, and a transponder (tag). The part of the tag that encodes the data is called the RFID inlay. When you combine the antenna and the transceiver, you have a RFID reader, also known as an interrogator.
There are two types of readers:
- Fixed readers, when the reader and antenna are installed in a specific place where RFID tags pass. For example, you can check out at Amazon Go without going to a cashier. You just walk through an RF zone and the reader receives the tag data.
- Mobile readers, which are handheld devices that can be carried anywhere.
Once you have the equipment, the RFID tracking process can be broken down into four phases:
- Information is stored on a RFID tag and is attached to an item like your product
- An antenna recognizes the signal of a nearby RFID tag
- A reader is connected wirelessly to the antenna and receives the information stored on a tag
- The reader then sends the data to a database, where it is stored and evaluated.
There are two common types of RFID tags:
- Active: tags that have their own power source and can read range up to 100+ meters. Active tags are used by companies where asset location or logistics improvements are important.
- Passive: tags that don’t have a power source. Electromagnetic energy from the reader powers these tags. This gives them a read distance from close contact to 25 meters.
Passive tags are most often used in RFID applications. You can embed them into an adhesive label or into the object itself. Passive tags are low-cost, so they are better in situations where you won’t reuse them. For example, if you receive a case of products, the supplier may attach passive tags to it. When you remove the products and throw out the case, the tags are also scrapped.
The advantage of passive tags include:
- Small size
- Light weight
- Long shelf life (up to 20+ years)
Passive tags are used to scan at a distance from a few inches to a few feet. They operate at the following frequencies:
- Low Frequency (LF) 125 -134 kHz
- High Frequency (HF)13.56 MHz
- Ultra High Frequency (UHF) 856 MHz to 960 MHz
The higher the frequency, the longer range you can scan.
Current applications of RFID
In retail settings, RFID uses include the following:
Store level inventory process improvements
Retailers use RFID to improve stock accuracy in stores. The standard retail inventory process is still time-consuming and manual. With RFID, you can instantly and accurately check-in entire shipments, rather than rely on individual package scanning and blind receipts. It’s also used to find items, reduce cycle count time, and auto reorder products at safety stock levels.
Lululemon has experimented with RFID technology to improve inventory accuracy and guest experience. Using RFID, they can show a customer exactly where a product they are looking for is, and help them buy it.
The retailer places RFID chips on the back of its hang tags. This provides information about where the product is: either the backroom or on the floor.
RFID technology not only streamlines inventory processes, but also provides 100% accuracy when it comes to restocking.
Say you sell women’s jeans. One style may have five different widths, lengths, patterns, and colors. It can be hard to keep the right amount of inventory for each variant; some may stock out and others may see no movement.
RFID can notify employees when a specific variation is out of stock or low inventory. It can also automatically show them where to find the product in the backroom and how many to pull.
📦 INVENTORY TIP: Set reorder points in Shopify Admin to get low stock notifications and ensure you have enough lead time to replenish inventory of a product before quantities reach zero.
Analyze in-store traffic patterns
Retailers can use RFID to track item movement throughout a store. With this information, you can learn your store's high-traffic end caps, pinch points, and different employee and product paths throughout the day.
Virtual fitting rooms
Retailers are testing “magic mirrors”, or touch screen monitors, in place of mirrors. By using a geo-locating RFID tag, the fitting room can track the item, show available colors and styles, recommend complementary clothes, and provide relevant product information.
My prediction is that many customers, especially millennials and Gen Z, will be a lot more comfortable with virtual fitting rooms and continue to get their clothes this way, even after the pandemic.
Contactless payments are any transaction completed using a mobile phone, contactless-enabled debit or credit card, or a key fob. Readers are placed close to a store’s point-of-sale (POS) system.
RFID self-checkout can speed up the traditional checkout process. Customers can shop as usual, but items are pre-tagged with a RFID tag. This eliminates the need to scan individual barcodes at point-of-sale.
Once the customer is done shopping, they can walk through a RFID checkout and verify their identity using biometric scanners. The RFID reader will scan every item in the bag with high accuracy. Once the customer has been scanned and paid, they leave the store. No lines, no hassle.
Potential future uses
RFID technology has taken a long time to become mainstream because of the costs associated with manufacturing each tag. However, advancements in technology allow manufacturers to create new types of RFID tags that are much thinner and more flexible than their bulky counterparts.
As a result, experts predict that this new type of RFID tag can be combined with other types of technology, including printed batteries and electronic printing. This means retailers could print their own RFID tags in the near future, driving down costs even further.
Drones and stock-picking
Storage space is becoming more expensive by the year. Warehouse rents increased by 10% this year, with experts predicting a shortfall of 140 million square feet of storage space by 2024.
Advancements in technology mean retailers can store goods vertically, rather than horizontally. RFly, for example, created a drone that scans RFID tags and locates products inside a warehouse. If the item is stacked on a high shelf, the drone will collect it.
With RFID-enabled drones, the health and safety risks of a factory worker are diminished. There’s no need for them to use machinery or climb ladders to retrieve the item.
Tracking temperature of goods
Certain products—including perishable goods—need to be stored at specific temperatures. If you go too far on either side of the scale, and an item is overheated or frozen, inventory can be damaged and ultimately unsellable.
RFID technology is evolving to include smart-sensing capabilities. Sensors within the RFID product tags will be able to monitor temperature and keep a log of it inside the tag. That way, supply chain management experts can spot where items are spoiling in transit or storage.
RFID vs Barcodes
Barcode technology is more common in retail settings than RFID. Barcodes are used as price tags and to track items in your store, storing information such as price, where it was made, and what batch it came from. Barcodes can be generated and shared through email or mobile phone for printing or scanning by the recipient.
Unlike barcodes, RFID tags don’t need to be in sight of a reader. Tags are embedded in an object and often complement EAN or UPC barcodes. They also hold more information than a barcode.
Three advantages of using RFID compared to barcode scanning are:
- More efficiency: you can scan multiple items at once
- More durability: tags can handle exposure to weather conditions like sun and rain
- More security: you can encrypt RFID tags so only your reader can get the data
RFID vs NFC
Near field communication (NFC) is a subset of the RFID technology family. The big difference is that NFC is used for two-way communication. Instead of the scanner receiving or sending data, both ends can receive and send information.
NFC is also used for short-range communication, so both ends need to be within inches of each other. In retail, NFC is commonly used as a card emulation device, such as when a customer pays with a contactless payment method like Apple Pay.
Benefits of RFID technology
The usage of RFID technology in retail is on the rise. One report found that 52% of companies are increasing their investment in sensors and automatic identification. Another 27% plan to adopt the technology within the next two years. Let’s take a look at why.
Speeds up inventory management
RFID technology has changed inventory management and stock control. RFID provides retail brands improved inventory accuracy and stock reliability, which leads to higher sales and customer satisfaction. It also provides real-time and specific information on inventory levels and stock details such as quantity, models, color, and size.
Because RFID tags track all your items, you can eliminate stocking issues and improve security in your store.
“Our interest in RFID initially was in ensuring that we could have more accurate count integrity of our inventory throughout the network,” explains Karl Bracken, Executive Vice President of Merchandising at Guitar Center, in a Platt Retail Institute research roundtable.
“Count integrity can be quite challenging, particularly when you’re turning inventory quickly. That’s especially true in categories where you have product that gets misplaced, broken, or stolen.”
Scanning products with a RFID reader also lowers the time spent on inventory, resulting in an increase in productivity and less manual work for employees. This allows staff to spend more time on customers and sales than counting stock. With a handheld scanner, one person can scan multiple items in minutes, leading to more frequent (and faster) stock takes.
Other ways RFID supports inventory management include:
- Receiving inventory. RFID antennas and readers do not need line of sight to scan RFID tags. You can automatically receive shipments without doing any individual pallet or item-level scanning.
- Lowering cycle count time. Since RFID antennas work from a distance, you can do cycle counts faster and more accurately compared to traditional processes like physical inventory counts.
- Automate reordering at safety stock levels. Since your overall accuracy is improved, you can set rules for replenishment. This triggers re-orders without doing a manual spot check to ensure replenishments are necessary.
Improves loss prevention
Retail stores are under pressure in today’s economy. Compared to ecommerce, there’s more competitive pricing, rising overheads and supply chain interruptions. Retailers also need to reduce the amount of shoplifting and employee fraud in their stores, a $61.7 billion problem in the US alone.
To overcome security challenges, retailers are turning to RFID technology to curb theft and reduce administrative error.
You can pair RFID movement tracking data with sales and video data to see if more items left the store than were sold during a specific time period. RFID lets you see which items were stolen, what time they were stolen, and video of the shoplifter. This helps you identify shoplifting trends and build a case against a perpetrator with authorities.
Top use security use cases also include:
- Overseeing your store's expensive assets. If you issue a laptop or piece of equipment to an employee, you can add a RFID tag to prevent them from leaving the store with it without your authorization. From an inventory management perspective, you could place RFID readers at all exits that trigger an alarm if someone tries to leave with stolen items. This can also give you insight into what items are most desirable, so you can add more security controls to curb losses, replace stolen items, and avoid stock-outs.
- Item-level tracking. RFID can help you track products throughout the supply chain and in your inventory from source to final destination. You can also record shipping details, quality information, intended destination, where an item is located, batch size, fulfillment times, and more.
- Simple and accurate auditing. RFID tags can store information throughout your supply chain process. You can timestamp arrivals and departures at locations, and see who accessed a product or inventory batch. If something goes missing, you can see exactly where and who interacted with it last. This level of insight provides ROI by reducing retail shrink.
Combining RFID with your security systems and barcode scanning can prevent theft and lower shrinkage in your retail business.
Speed up checkout
More and more retailers are looking for ways to disrupt one of the least loved components of the shopping experience — going through the checkout counter. Keeping queues under control is a common retail struggle, and it’s no surprise that studies show that long lines hurt sales.
Because the checkout experience is a major friction point for retailers and shoppers alike, some experts are predicting stores of the future won’t have a checkout at all. The metric for success is that customers should “feel like [they’re] stealing.”
That’s why much of the retail industry was abuzz with the opening of the first Amazon Go store, which enabled customers to grab items off the shelves and simply leave. The store automatically charges the items to each shopper’s Amazon account, and sends them a digital receipt for their purchase.
When the beta store opened in Seattle, the tech community and consumers alike started taking guesses at what technology let them walk out of stores without making the obligatory stop to pay at the checkout counter.
While most assumed RFID technology was the culprit, Amazon was quick to deny it. Instead, it was revealed that they used sensor fusion which is a combination of technologies including cameras, RFID, and sensors.
This use case marks an important turning point for RFID technology. More retailers are looking for ways to improve the checkout experience and exercise more control over the shopping experience.
Increase efficiency for Buy Online, Pick-Up In Store (BOPIS)
Buy-online, pick-up in store is a customer service every retailer should offer. It’s a great way to increase in-store traffic and bridge the gap between online and in-store shopping experiences. A recent survey revealed that 45% of respondents say BOPIS orders represent 11 to 40% of revenue, while another 22% say it’s responsible for 40 to 65% of revenue.
Since RFID tracking gives you more inventory accuracy, you can consistently deliver BOPIS as a service. Without precise, real-time inventory counts, you could sell an item for pickup that isn’t actually available in store.
“As we got into it and did our research, and then rolled it out, we found that it also has greatly enhanced our ability to pick product quickly for ship-from-store and pick up-in-store offerings,” says The Guitar Center’s Karl Bracken.
“In our store, on our sales floor, it has been very useful to use the Geiger counter functionality on the RFID readers to find apparel. For instance, to speed up the pick, pack, and then shipping that product directly to consumers. Largely, it is about count integrity and shrink avoidance, but we've gotten other sorts of labor efficiencies from our rollout.”
Potential concerns with RFID
Data security and privacy
A growing number of consumers are worried about how their data is used—especially when shopping online. Four in 10 online shoppers are concerned about what happens to their data through the ecommerce purchasing journey.
Combine that with the fact RFID systems are susceptible to attacks or viruses from hackers and fraudsters, and it’s clear why data security is an issue for retailers using RFID technology.
However, there is comfort in knowing that attacks on RFID systems aren’t easy. Most modern Internet of Things (IoT) technology has built-in encryption to prevent hackers from eavesdropping on the sales and customer data being passed through the platform. It’s also difficult for most RFID tags to be infected with a virus since they have low storage capacity.
Retailers should also take steps to secure their data by locking memory banks. Middleware should also be used to prevent man-in-the-middle attacks—where fraudsters place a device between the RFID tag and the reader to intercept the data being transmitted.
The RFID industry is regulated; every business using RFID technology needs to abide by certain standards—including ecommerce retailers. These guidelines, governed by the International Standards Organization (ISO), GS1, or EPCglobal, include:
- The frequency at which a RFID tag can operate
- The type of data being transmitted between the tag and the reader
- How the tag communicates with the reader
Radio frequency guidelines are regulated to ensure that frequency waves aren’t great enough to cause damage. People and animals can get hurt if the waves transmit at too high a frequency.
The exact allowed RFID frequency varies by country.. In the US, for example, retailers are allowed to use RFID tags with a frequency range between 902 and 928 MHz.
There are also concerns that RFID technology can impact sensitive medical devices within a certain proximity. A research report concludes:
“On one hand, RFID systems can interfere with sensitive medical devices working in its influence area, causing malfunctions that can affect patient safety. On the other hand, medical devices can generate electromagnetic fields that can affect the performance of RFID systems, and this could constitute a threat to the patient's safety if the device is devoted to the patient identification or medicine dosage.”
Examples of RFID technology in retail
Retailers are always on the lookout for ways to test and implement technology to operate more efficiently, set themselves apart from the competition, and improve the shopping experience.
The majority of retailers see RFID technology as a clear path to more accurate inventory counts, but some innovative retailers are using it for more than simple inventory management.
Not sure how radio-frequency identification technology could fit into your business strategy? Here are four innovative examples of how RFID technology can be put to work in retail.
1. Ralph Lauren’s virtual fitting rooms
Luxury retailer Ralph Lauren created its own in-store fitting rooms. Customers step into interactive fitting rooms to try on their merchandise for size.
A virtual screen uses RFID technology to read data from inside a clothing tag. It uses that data to present an overlay of the product on a live image of the customer. These fitting room mirrors allow shoppers to get a 360-degree view of what they’re trying on and can even change the color or pattern of the clothing with a simple gesture.
The result? Ralph Lauren reports a 90% engagement rate with the smart fitting room mirrors. It also helps the retailer provide a level of personalization that can build loyalty and keep customers coming back for more.
2. Dirty Lemon’s unmanned store
Because the checkout experience is a major friction point for retailers and shoppers alike, some experts are predicting stores of the future won’t have a checkout at all. The measurement of success: A checkout process so quick and mindless that it feels like stealing.
Beverage brand Dirty Lemon took this to the extreme with its first brick-and-mortar store in New York. Completely unmanned, customers visit the store and pay for their items via SMS—all without coming into contact with a retail associate.
Heatmap trackers monitor who enters the store; RFID technology inside coolers keep stock of inventory.
Knowing in real time when a product leaves the cooler is immensely powerful and this data tells us instantly what drinks customers prefer. It enables us to ensure that we’re never out of stock and map long term trends to help us drive our product development.
This use case marks an important turning point for RFID technology. More retailers are looking for ways to improve the checkout experience and exercise more control over the shopping experience—sometimes, by removing themselves entirely and letting their product take center stage.
3. Advanced Apparels’ RFID stock locator
Retailers are investing millions into integrated RFID solutions that minimize out-of-stock situations, provide real-time merchandise location data, and improve the customer experience. The technology allows them to track their inventory throughout the retail supply chain, from the warehouse shelves all the way to the sales floor.
Clothing wholesaler Advanced Apparel is one of the brands using RFID technology in this way. The merchant uses RFID to pinpoint where its goods are located within a warehouse—down to the rack or shelf it’s stored on.
When our [Wave] RFID handheld software sees a RFID Marker tag near a RFID-tagged item, it adds a trail—a history—of where a RFID tag has been. Thus, an item's location might be "Warehouse1," while the Marker's location may be "Shelf 5, Row 15.
This use case is a huge timesaver for brands with thousands of SKUs. In Advanced Apparel’s case, searching 6,000 SKUs for a single item is unproductive and not cost-effective.
The best part? Advanced Apparel added its own direct-to-consumer website earlier this year to co-exist with its wholesale deals and dropshipping partners. Now that the brand uses RFID to store and locate goods, it has an always-updated inventory count to sell omnichannel.
It’s no wonder why RFID technology can help retailers reach 100% order accuracy—a KPI most stores are working tirelessly to achieve.
4. Battersea Dogs and Cats’ RFID advertising campaign
In 2016, an organization for stray dogs and cats in the U.K. called Battersea Dogs and Cats, launched a campaign called #LookingForYou.
Over the course of two weeks, representatives from the animal shelter handed out brochures to potential pet parents in a London mall. Unbeknownst to passersby, the brochures were tagged with RFID chips.
As they carried on with their day, seven closely located digital billboards were activated as they passed, showing video images of an adorable dog that seemed to be following them home. If the person approached the screen, the dog moved toward them.
The campaign increased website visits by more than 33%. Almost all (79%) of those that clicked through from the campaign microsite were new to Battersea.
And there was a truly happy ending: By the time the RFID campaign had ended, there were 10 times more leads than dogs looking for their forever homes.
Integrating RFID into your retail store
The retail industry is still in the early days of mass RFID adoption. Granted, the cost of implementing RFID technology is a worry for some retailers. Yet with the lower barrier of installation and the rising impact of shopper expectations, acceptance is inevitable in the coming years.
If you’re unsure, start small. Use RFID tags to locate inventory in your storeroom or warehouse. Analyze your peak shopping times for each store. And if you really want to push the boat out, create a virtual mirror that scans RFID tags and overlays what the product would look like on a customer.
Remember: Technology isn’t something to fear. When humans and RFID technology work together, merchants can save time, become more productive, and save money.
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