HOW SMALL MEDIUM RETAILERS CAN BENEFIT FROM RFID

HOW SMALL & MEDIUM RETAILERS CAN BENEFIT FROM RFID MARTY JOHNSON

RFID ITEM-LEVEL IN RETAIL WILL BE AS PERVASIVE AS BARCODE • Started with largest retailers, Many more piloting • Moving to Specialty Retailers pilots and rollouts • Smaller Retailers are piloting • Brand Owners who are tagging for big retailers are piloting in company stores

RETURN ON INVESTMENT • The Age-Old Question – How can I use RFID and get a return on my investment? • The Age-Old Answer: – Eliminate Inventory ‘Touches’ – Automate Manual Processes – Eliminate Errors in Data – Improve Visibility – Make better, faster Business Decisions – Reduce Inventory Levels and Out of Stocks – Reduce Expedited Shipments

VISIBILITY IS THE KEY • Visibility drives better business decisions • Where do I need to see the asset? • Where do I not need to see the asset? • How often do I need this info updated? 4

RFID EXTENDS BARCODE’S VALUE PROPOSITION Barcode RFID Confined by line-of-sight scanning Wireless/no line-of-sight dependency 1: 1 Scan Ratio 1: 100 s Read Ratio Approaching information storage limits Significantly more storage capacity Limited information can be encoded / leveraged Ability to add/edit data from new and existing sources Less automated Enables automation Deeply entrenched Increasingly easy to integrate with limited invasiveness

THE RFID CONVERSATION HAS CHANGED 2008 -2010 Before 2008 • Does it work? • Does it work reliably? 2010 Present • How do I make it work for my business?

THE FUNDAMENTALS REMAIN The right product in the right place at the right time. • Inventory/Asset visibility and control result in: – Efficiencies and cost control – Lower Safety Stock – Higher Asset Utilization

THE COST OF POOR INVENTORY ACCURACY OVER TIME • Decaying inventory accuracy is responsible for: • High out-of-stocks (8%+) • Safety stock as high as 50% • High shrink (2%+) • Poor forecasting and decision making • The above contribute to as much as 415% in lost sales every year • True costs of visibility are even higher due to markdowns, poor planning, etc. • Item-level RFID can help… and is raising on the priority list

ITEM-LEVEL RFID SOLVES THE INVENTORY ACCURACY PROBLEM Managing inventory at an item-level provides accuracy that can: Increase sales Reduction in out-of-stocks and greater selection afforded by item-level RFID can lead to a 2 -10% increase in sales +2 -10% lift Reduce inventory Increased accuracy levels approaching 100% can lead to reduction in inventory across the system of greater than 5% >5% reduction Enable & enhance omnichannel Same-day fulfillment Utilize near-perfect inventory visibility to offer fast in-store pickup of online orders and sameday shipping of online orders from nearby stores

COMMON RETAIL USE CASES • Cycle Counting / Inventory • • Display Compliance • • Handheld RFID Reader used to take frequent inventory of RFID-tagged categories Quickly verify displays and matches backroom inventory Item Location • Quickly find a particular item

BENEFITS IN RETAIL STORES • More accurate inventory – Move from an industry average of 63% to 95% • Inventory labor savings – Inventory taking productivity increased by 96% – 200 items per hour compared to 12, 000 items/hour with RFID – 18% reduction in the time it takes associates to locate product *Source - University of Arkansas RFID Research Center • Out-of-stock reductions – Reductions by as much as 50% • Sales increases – Examples from 2%-20%

AMERICAN APPAREL CASE STUDY – THE CHALLENGE • ~12, 000 SKUs on floor, 1 item/SKU • Manual Replenishment Process Requiring 2 Barcode Physical Counts / Week • Physical Counts Require 240 man hours per month • 100 – 300 Missing Items per count

AMERICAN APPAREL CASE STUDY – THE SOLUTION • • • First Stores went live Fall of 2008 • Driven by need to reduce of out of stocks • 250 stores live in 20 countries • 1 billion RFID transactions during 2013 holiday season RFID Tagging in Distribution Center • 30 tagging stations using Zebra RFID printers • 15 Million Tags/year In Store Solution Includes: • Handhelds, RFID enabled POS and Backstock workstations for replenishment, receiving, transfers and encoding • Solution being used to implement Omnichannel strategy “click and ship”

AMERICAN APPAREL CASE STUDY – THE BENEFITS • Sales per Store Up 14% Average • 188 Labor Hours / Month Saved • Per-store ROI in 4. 5 Months • Shrink Reduction

AMERICAN APPAREL 2012 SEC FILING “. . RFID (deployments). . have allowed us to reduce our unit inventory levels. . ” “. . RFID (solution). . Increase sales, reduce costs and increase liquidity. . ”

AREAS TO FOCUS ON PRIOR TO IMPLEMENTATION • Where and how is best approach to RFID tag product? • What processes to enhance in the store and supply Chain? • What measurements do I want to concentrate on during pilot to quantify value creation and ROI?

QUESTIONS 17