Is Wal-Mart About to Reinvent Retailing?

Radical uses for RFID

Wal-Mart has big plans for RFID and some of the applications they are anticipating RFID will support will no less than reinvent the retail business model as we now know it. On June 14th, 2006 The University of Arkansas Information Technology Research Institute released its’ second paper on Wal-Mart Out of Stocks. Below is an abstract of the paper summarizing some of the out-of-stocks findings.

ITRI Abstract:

In a previous paper (Hardgrave, Waller, and Miller, 2005), we reported the preliminary results of a major study that examined the influence of RFID on out of stocks (OOS). This initial paper provided some preliminary surface-level analysis of the findings. Overall, as previously reported, when looking across all Wal-Mart store formats for a large group of RFID tagged items (4554 items), the results were positive and encouraging.

However, with the exception of accounting for the OOS improvement in the control stores, the previous paper did not control for various influences on out of stocks.

In fact, the previous paper provided some point estimates of out of stocks that were intentionally conservative so as to not to overstate the benefit of RFID. In this paper, we further examine the influence of RFID on out of stocks. Specifically, we examine the RFID effect by sales velocity (i.e., number of units sold per day).
As suspected, the influence on RFID varies by the units sold per day. These new findings control for other major variables such case pack size and shelf quantity to further isolate the RFID effect. Overall, we found that for products selling between 0.1 and 15 units per day, RFID reduced out of stocks by 30 percent. This point estimate provides a much more robust and realistic indication of RFID’s ability to reduce out of stocks.

End of Abstract.

As interesting as these Out-of-Stocks improvement numbers are there was even more exciting discussion surrounding Wal-mart’s RFID strategy going forward.

Improvements in Out-of-Stocks and Promotions were defined as incremental advances, but a number of more disruptive or radical applications for RFID were discussed.

These were Contactless Checkout using RFID to automatically scan and instantly charge the customer for an entire basket of merchandise and also Scan Before Pay where Wal-mart would not pay the vendor until they verified the sale of the merchandise to a consumer.

The ramifications of these changes are huge and will literally allow Wal-Mart to rewrite the financial formula for retail or as this article is entitled, reinvent retailing.

Beyond just the customer service benefits of Contactless Checkout, just imagine the labor expense dollars they will save as compared to the competition who must still pay for cashiers at every lane.

Additionally much space in the store is wasted for checkout lanes and waiting areas which would no longer be required.

Implementing the Scan before Pay methodology described above would result in Wal-Mart removing all of the working capital involved in the business for inventory as it would all be owned/financed by the vendor.

Just these two items alone will allow Wal-mart to almost completely turn the current retail business model on it’s head and RFID is rapidly becoming the silver bullet that will finish off already weak competition.

Jeff Ashcroft

© Copyright 2006, All Rights Reserved,
Ashcroft Communications International Ltd.

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