The timeless question – how does a retailer increase productivity and profitability in an increasingly competitive market?

Over the years most large retail chains have mastered the supply chain and become the epitome of efficiency, starting with their merchandise suppliers and going right through the chain until products hit the shop floor. In fact, the use of RFID technology in the supply chain is nothing new – retail powerhouses such as Wal-Mart in the US and Metro in Europe have proven the value and cost savings that RFID brings to this industry.

So when a department store turns to RFID technology to improve its operations, how can it be deployed and what can the store expect to achieve? For Mitsukoshi’s flagship department store in the heart of Nihombashi, Tokyo, the management had two very clear goals – to create a department that improves customer service by cutting down on waiting time, and to catch valuable sales that are otherwise lost when the department runs out of its most popular products.

Mr. Masakazu Nishida at Mitsukoshi’s Nihombashi store explained the reasoning behind the decision to introduce RFID technology. “Department stores world wide are fighting an increasingly tough battle for the loyalties of the shopping public. On the streets of major cities everywhere we find everything from haute couture flagship stores to major discount chains offering a bewildering variety of choice to consumers. All of this means that department stores must improve their cost performance and improve services in order to attract customers. In the case of Mitsukoshi, our supply chain had already been made very efficient, so, back in 2004 we decided to depart on an ambitious program to introduce RFID tags to our merchandise through a trial in the women’s shoe department. This department was chosen as the prime candidate for RFID implementation because it was the department which kept customers waiting the longest, and it was also the department that most often ran out of the most popular sizes and/or colors of shoes. Our goal was to make use of technology to provide customers with a more personalized and hassle-free shopping experience, while allowing them more time with our shop assistants.”

“One of the biggest problems facing shop assistants at any women’s shoe department is that they generally only have Point of Sale (POS) data to judge if shoes are in stock. POS data isn’t always accurate because it shows only what has been sold. Because our system wasn’t active in real time it didn’t indicate where the stock was being held, meaning that customers were kept waiting while staff searched through all of the shoes in the stock room manually.”

On average, Mitsukoshi had a non-stock ratio (the percentage of stock that is sold-out or otherwise unavailable) of between 4 – 8%. This figure varies depending on the season, however in the women’s shoe department the problem of non-stock is often considerably higher, meaning 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 much higher sales per square meter of floor space than other countries. For example, stores in Japan need to sell approximately 7.5 times the amount of goods per square meter as their US counterparts. The problem is compounded because Japanese customers expect very high levels of quality and service, and they like a rapid turnover of new stock each season. It is a very labor intensive and expensive process to constantly renew stock, and because of comparatively limited storage space, Japanese 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.

“A particular problem faced in the women’s shoe department was that sales clerks were spending a large amount of time in the stock room or traveling back and forth from the floor in order 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. We decided to tag all of our stock with RFID tags and allow customers to find the shoes in the sizes and colors that they wanted – all with great accuracy and in real time. This reduced the number of trips our staff made to the stock room, and greatly increased the amount of time that could be spent directly with customers.”

In order to avoid any confusion among its customers, Mitsukoshi decided to use RFID tags that were the same standard size as 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 rather than the shoes themselves. This meant that the majority of the stock could be tagged at the beginning of the supply chain, and only the remaining stock used for display purposes had to be individually tagged.

RFID Trial Gets the Green Light

When the trial was first kicked off in October, 2004, Mitsukoshi’s management made special efforts to educate the staff on the use and benefits of the specially designed kiosk terminals (containing the RFID reader). At first the staff was understandably conservative about their expectations for 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. The system had been designed to be very easy to use, so that customers simply had to place a pair of the display shoes on top of one of the kiosk terminals, allowing 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 that perfect pair of shoes.

Over the course of the two month trial, the staff increasingly came to rely on the RFID enabled system when they saw first hand its ease of use and an impressive increase in sales of 10%. Because of the time savings, the average time spent with a single customer went from 14 minutes to six minutes, while staff could show customers an average of more than three different pairs of shoes, as opposed to less than two pairs without the system in place. It was a resounding success – Mitsukoshi had created a shoe department that no longer made customers wait and had increased sales at the same time.

Now that the trial has ended, and Mitsukoshi has begun to deploy the system at other stores around the country including Ginza, Fukuoka, Sapporo, Sendai, and the Nagoya Sakae and Nagoya Hoshigaoka stores. “We are now able to provide up-to-date information to our suppliers so they are aware of what stock is most popular with our customers. 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.”

Note: Article provided by Mr. Lutz and NXP

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