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Introduction

RFID and NFC are widely used in retail to track inventory in store and engage with shoppers. The two technologies are key for the digitalization of store operations and can be instrumental in facilitating omnichannel retail. We believe RFID and NFC will continue to play a key role in retail, along with other emerging technologies.

This report shows how RFID and NFC can be used in retail, illustrates the advantages of these technologies, showcases recent examples and provides an outlook on the future role that the two technologies are likely to play in retail.

Our previous report NFC Technology—Helping Retailers Think Like Brands shows how retailers can leverage NFC to engage with shoppers. This report updates this insight and complements it with further analysis on the application of RFID in retail and a comparison between the two technologies.

RFID vs. NFC: Key Differences

RFID and NFC are wireless technologies that employ radio signals to share information. Both use radio frequency to send and receive data. Both technologies employ tags: Small plastic devices with embedded RFID or NFC technology that enables communication between devices.

The key differences between the two technologies are:

• One-way communication: RFID is just one way — the tag sends the signal to the receiver. NFC is two ways — the tag can both send and receive information.
• Distance: RFID can send and receive signals for a few meters/feet, but NFC can send and receive only a few centimeters/inches.

RFID is used mainly for item tracking, while NFC is used for applications such as automated payments and peer-to-peer information sharing between devices.

[caption id="attachment_94765" align="aligncenter" width="700"] Source: Coresight Research[/caption]  

RFID and NFC find extensive use in retail thanks to their connectivity capabilities. The relatively low cost of deploying these technologies (RFID and NFC tags cost a few US cents per unit) makes the application an interesting proposition for multichannel retailers that require the ability to effectively track inventory and engage with shoppers.

RFID: A Key Element for Automation in Store

The complexity of multichannel operations, rapidly-changing consumer demand and shopping habits makes it more challenging for retailers to manage inventory. RFID technology helps track items to ensure retailers are always in control of their inventory. Through RFID, retailers can avoid scenarios such as out-of-stock, misplaced products in-store and shrinkage, all of which can improve shoppers’ experiences. This in turn should boost loyalty and conversion.

A scenario for RFID application in retail is summarized below. RFID tags are embedded in item labels for identification and tracking, and RFID readers read labels wirelessly, recording all items in stock. Store associates use RFID readers to access information on inventory levels in real-time, such as how many items are left on the shop floor, stock room or delivery bay, and item details such as sizes and colors.

[caption id="attachment_94766" align="aligncenter" width="700"] Source: Coresight Research[/caption]  

RFID item-level tracking capabilities make inventory management operations more efficient, maximizing the possibility for shoppers to find the item, size and color they are looking for — or directing the consumer to another store or online if the product is not available in the outlet. This can reduce markdowns and ensure retailers have inventory throughout a given period of time. RFID helps retailers to achieve:

• Inventory Accuracy: RFID increases accuracy to nearly 100% from just 31% using traditional barcode-based systems for inventory management, according to Auburn University RFID Lab.
• Loss Prevention: RFID item-level tracking capabilities can help to identify, monitor and reduce shrinkage significantly.
• Better Consumer Insight: RFID makes it possible for retailers to obtain insight into the behavior of shoppers in store thanks to the item-level tracking capabilities of the technology.
• Improved Shopping Experiences: By tracking how the shopper is moving the items in store, retailers can map the consumer shopping journey. The insight can then be used to inform strategic decisions such as assortment and store layout.

Use-cases for RFID in retail include inventory management, consumer engagement, in-store automation and self-checkout execution.

Inventory management: The primary RFID applications in retail and crucial for today’s omnichannel operations are store optimization, loss prevention and return management. RFID technology facilitates omnichannel strategies such as buy online, pick up in store (BOPIS), which requires retailers to have full inventory visibility throughout the entire store and distribution network.

Walmart pioneered the application of RFID in retail in 2003, when the company started to use it for supply chain tracking. With time, the technology became more efficient and cost-effective, unleashing further applications.

In 2008, US department store operator Macy’s started to test RFID for in-store inventory management, giving the retailer greater inventory visibility that has helped its omnichannel operations. By 2011, Macy’s decided to extend a full RFID strategy and aimed to have all its stock RFID tagged by the end of 2017 (as of July 2019, we could not find confirmation of whether the objective was reached).

[caption id="attachment_94767" align="aligncenter" width="700"] Source: RFID Journal/Supplychaindive.com[/caption]  

Following Walmart and Macy’s lead, many retailers have been implementing RFID for inventory management:

• Avery Dennison: British department store operator John Lewis has been using Avery Dennison’s RFID technology since 2017 to improve inventory management of key fashion products. Other retailers that have partnered with Avery Dennison include sporting goods retailers Lululemon and Decathlon, and department stores Macy's and Marks & Spencer.
• SML: The RFID technology provider announced a partnership with Microsoft in June 2019 to combine SML RFID technology with cloud platform Microsoft Azure to be implemented in 1,000 retail stores worldwide. The company has been working with retailers including Uniqlo, Tesco, Marks & Spencer and Tommy Bahama.
• Catalyst: Li & Fung company Catalyst specializes in the development of RFID platforms for the retail industry and has been working with leading grocery retailers including Lidl, Kroger, Mercadona, Dia and Morrisons, according to the company’s website.

Consumer engagement: RFID is a key component of in-store technology used by retailers to interact with shoppers and provide a more engaging shopping experience. Using Avery Dennison technology, fashion brand and retailer Rebecca Minkoff developed interactive smart mirrors that connect with RFID tags attached to the items to view product details and style recommendations. This interaction also creates consumer insight, such as duration of fitting room sessions, response times to address shoppers’ requests, SKU velocity and conversion rates.

[caption id="attachment_94768" align="aligncenter" width="701"] Source: Avery Dennison[/caption]  

In-store automation: RFID is a key enabler of in-store automation. The technology can automate tasks and processes that are traditionally executed by staff, resulting in a more straightforward and less time-consuming shopping experience. RFID is widely used in unstaffed convenience stores such as BingoBox, a startup launched in 2016 and that raised funding from investors including Chinese group Fosun Capital. Although the outlet operates through a combination of technologies — such as cameras, image recognition and mobile payment — BingoBox relies mainly on RFID to detect which products have been picked up from the shelves and to enable customers to shop without staff.

[caption id="attachment_94769" align="aligncenter" width="700"] Source: BingoBox[/caption]  

Self-checkout: Another in-store automation process enabled by RFID deployment is self-checkout. For example, startup MishiPay offers a technology that enables shoppers to pick up a product in store, pay with their phone and walk out. RFID technology is used in MishiPay’s platform to detect the movement of the items and trigger the alarm if a store visitor walks out without paying. The platform was implemented by MediaMarktSaturn in March 2018, when the retailer launched Europe’s first checkout-free consumer electronics store in Austria.

[caption id="attachment_94770" align="aligncenter" width="700"] Source: MediaMarktSaturn[/caption]  

NFC: A Powerful Tool for Shoppers Engagement

NFC tags are small plastic devices with embedded NFC technology that enables communication between devices. NFC tags are inexpensive, making the investment required by retailers to deploy the technology very affordable. In brick-and-mortar store scenarios, NFC enables simple interactions between the shopper and the retailer – with most shoppers, in fact, since most new smartphones are NFC enabled. Some 75% of Samsung phones and 96% of Apple phones were NFC enabled as of 4Q 2018, according to mobile telecommunication services provider Scientiamobile.

NFC tags send information to shoppers’ smart devices when in close proximity to the product associated with the tag. The tags have very limited storage capacity, ranging from 48 bytes to 2 kilobytes, enough to transmit only a simple piece of information, such as a link to a website.

[caption id="attachment_94771" align="aligncenter" width="700"] Source: Coresight Research[/caption]  

NFC technology enables retailers to engage with shoppers in store, deliver personalized and more convenient shopping experiences and understand the impact of marketing strategies:

• In-store engagement: In physical stores, retailers can use NFC tags to enhance engagement. For instance, a shopper with an NFC-enabled smartphone or tablet can scan the NFC tag on a shirt to see what other colors are available and receive suggestions for matching articles.
• Brand engagement: NFC tags embedded in products encourage customers to engage with brands. Companies can use NFC technology to deliver branded editorial content, information such as local weather conditions and links to social media posts, for example.
• Improved in-store shopping: NFC can make the in-store shopping experience more straightforward. For example, by accepting NFC-enabled mobile payments, retailers can offer shoppers a convenient payment option.
• Measure the impact of marketing: Retailers can also measure the impact of the messages they send to customers through NFC. For example, they can tag the links that marketing managers include in NFC tags, and then use tools such as Google Analytics to measure the impact of each marketing campaign.
• Encourage store visits and repeat purchases: information sent by NFC tags can encourage shoppers to visit stores and create a sense of exclusivity to reward loyal customers. For example, retailers can send notifications about exclusive in-store collections to a selected group of loyal customers via NFC tags embedded in purchased items.
• Profile customers to make marketing more personal and effective: When a shopper clicks a link to a social media or transactional site sent via an NFC tag, retailers can capture information about that consumer’s browsing preferences. Retail and brand managers can use that information to personalize future marketing messages.

NFC applications in retail started to become viable in 2006, when Nokia introduced the first cellular phone with an embedded NFC chip. In 2011, Google launched an NFC-enabled Google Wallet that introduced the possibility of mobile payments in stores. In 2012, UK fashion brand and retailer Burberry adopted NFC technology in stores by introducing tags attached to items for interactions with connected mirrors.

[caption id="attachment_94772" align="aligncenter" width="700"] Source: Digital Marketing Resource Center[/caption]  

Since Burberry’s move in 2012, many retailers followed the UK retailer’s lead and have been starting to adopt NFC for applications including consumer engagement, convenience and product digitalization.

In-store engagement: US wedding planning company Zola opened a New York pop-up store in January 2019 in which NFC was used to help shoppers build their wedding gift lists. Through the Zola mobile app, shoppers could scan NFC tags attached to the over 2,000 gifts on display in store to access information related to the product and to add it to shopping lists. The gifts could be then purchased online on the retailer’s portal. The temporary showroom was open until June 2019.

[caption id="attachment_94773" align="aligncenter" width="700"] Source: Flatirondistrict.nyc[/caption]  

In-store convenience: In December 2018, consumer electronics retailer MediaMarktSaturn introduced a self-checkout system at its Hamburg store that uses NFC technology to enable shoppers to add products to their shopping baskets and to pay. Shoppers simply tap the NFC tags attached to the products using a smartphone with the Saturn Smartpay app installed. Consumers can pay through the app by credit card, PayPal and Google Pay. After paying, shoppers have to get the security tag deactivated at a dedicated helpdesk before leaving the store.   

[caption id="attachment_94774" align="aligncenter" width="700"] Source: MediaMarktSaturn[/caption]  

Product digitalization: NFC tags can be embedded in items such as apparel to enable brands and retailers to interact with the customer post sales. At NRF 2019, outdoor brand Mammut Sports presented Mammut Collect, an app that interacts with its NFC-enabled product line developed in collaboration with RFID technology company Smartrac. Using the app on their smartphones, wearers can scan the RFID touchpoint on the item they are wearing to access additional features.   

[caption id="attachment_94775" align="aligncenter" width="700"] Source: Connect.mammut.com[/caption]  

RFID and NFC Will Be Key for Emerging Retail Technology

We believe the future of retail will be increasingly omnichannel with strong online-offline integration. RFID and NFC are key technologies for the digitalization of store operations, and we expect their application in retail to further expand in the future.

The global market for RFID in retail is expected to reach $12 billion in 2025, climbing a 15% CAGR for the period from 2019, while the total global market for NFC is expected to reach $47 billion in 2024, growing a CAGR of 24% from 2019, according to insight firm Grand View Research.

RFID and NFC provide the item level connectivity that acts as an enabler for all other multichannel technologies gaining pace in retail. For example, AI and machine learning need systems to track information about items in store, blockchain needs a framework that gathers data to be securely stored. We believe the tracking capabilities of RFID and NFC will support many other emerging retail technologies.

Key Insights

RFID and NFC are wireless technologies that employ radio signals to share information. The two technologies are used in retail to track inventory and engage with shoppers.

RFID’s item-level tracking capabilities enable retailers’ inventory management operations to become more efficient. Retailers using RFID can improve inventory accuracy, prevent shrinkage, obtain consumer insight and improve shoppers’ experiences.

Retailers such as Lululemon, Macy’s and Uniqlo have partnered with RFID providers such as Avery Dennison, SML and Catalyst to enhance their inventory management capabilities using RFUD. In-store automation and self-checkout are other applications enabled by RFID.

NFC technology enables retailers to engage with shoppers in store, deliver personalized shopping experiences and understand the impact of marketing strategies.

Brands and retailers including Zola, MediaMarktSaturn and Mammut Sports adopted NFC to help shoppers decide what to buy in store, to provide more information about the products on display, to facilitate payments and to interact with consumers after sale.

We believe RFID and NFC will be instrumental to the successful implementation of data-heavy emerging technologies such as AI, machine learning and blockchain in retail.