RFID Technology Improves Inventory Management and Pays Additional Dividends

The U.S. retail landscape remains uneven, with strong consumer spending in categories like motor vehicles, parts, and building materials—likely driven by pre-tariff buying behavior—while furniture stores experienced a nearly 1% month-over-month decline. The National Retail Federation projects slower consumer spending growth in the near term due to inflation and tariff concerns. Amid this challenging environment, inventory remains the largest operating cost and investment for retailers, and managing it effectively is critical to business health. Key inventory metrics such as Inventory Turns, Days of Inventory, Stockout Rate, Sell Through, and Shrinkage help retailers stay agile. Shrinkage, in particular, has become a focal point due to its direct impact on profitability and its controllable nature, stemming from factors like theft, damage, and administrative errors. As such, it continues to be one of the most closely watched indicators in retail performance management.

RFID (radio frequency identification) technology has been shown to be mission-critical for understanding how merchandise moves throughout stores and how it impacts shrinkage and theft. RFID uses electromagnetic waves to identify and track tags attached to objects. In a tight operating environment with little margin for error, RFID has become a bigger tool in retailers’ arsenals regarding merchandise visibility. As a result, RFID system providers, including Impinj, Zebra Technologies, Avery Dennison, NXP Semiconductors, HID Global, Honeywell, and GAO RFID, indicate they are seeing more interest from retailers in the technology than ever before, particularly given the current economic environment. According to Fortune Business Insights, the global RFID market is projected to grow at a compounded annual growth rate of nearly 12% from its current size of $15.5 billion to nearly $40 billion in 2032, with the tags and readers segments growing at nearly equal rates.

RFID technologies help retailers improve revenue and cost performance via better shrinkage reduction, more accurate inventory management (potentially reducing the number of out-of-stock occurrences), and lower labor costs. RFID can help a retailer’s transition to seamless omnichannel operations, allowing for distribution network inventory data, supporting online purchases, in-store pick-ups, and same/next-day deliveries. Retailers and their marketing partners can also create cross-selling opportunities by better understanding the location and quantity of inventory throughout any distribution network component.

RFID technology has been a driving force in retail inventory management for several decades. However, process, technology, and cost improvements are now allowing RFID hardware and software to provide retailers with better tools for omnichannel fulfillment, data accuracy, and flexible customer relationship management, thus increasing the return on RFID infrastructure investment. Not to be left out of the AI hoopla, RFID systems have been using AI to draw actionable processes out of RFID tag readings to help optimize inventory management, supply chain operations, and asset tracking processes, allowing for improved cost savings and operational efficiencies. By analyzing patterns and anomalies versus historical behavior, AI can help businesses detect and prevent inventory shrinkage, theft, or counterfeit products, thereby protecting assets and improving security. As a result, RFID systems’ typical returns on investment have been increasing rapidly, up from 11% in 2023 to a forecast of nearly 20% by 2032. Beyond that, using RFID technology to eliminate out-of-stock inventory has allowed some retailers to increase revenue by as much as 2.5%

RFID systems consist of three key components:

• RFID tags which store and transmit information about individual products.
• RFID Readers / Hardware send and receive signals, allowing for data visibility from a tag, including SKU-specifics and location.
• Software that encodes RFID tags and gathers, stores, and analyzes RFID data.

An individual passive RFID tag costs approximately $0.03. WIFI-enabled RFID systems allow more accurate data capture over a broader area, making system deployment and integration quicker and easier. RFID Readers / Hardware costs have followed historical computer hardware price trends, dropping by over 50% over the last seven years. As a result, RFID system deployment costs have dropped dramatically, further improving the cost-benefit analysis for technology adoption and allowing retailers a faster route to cost improvements. Previous generations of RFID technology deployments provided insights once every 30 days. However, new technologies can provide AI-driven real-time data, often coupled with time-stamped video.

RFID systems are typically deployed in the following functional areas:

• Inventory Location / Tracking
• Distribution Network Operations
• Customer Relationship Management

Inventory location/tracking is the most widely used RFID application in retail. Accurate product location information can lower inventory management costs and improve fulfillment processes, boosting customer satisfaction.

RFID can also provide highly accurate information about an item’s location in the distribution network. This can help store managers plan staffing requirements based on new product introductions, store replenishment, and customer pickups for online orders during sales / seasonal peaks.

Self-checkout systems are another potential candidate for RFID adoption, allowing shoppers to scan and pay for items with their credit cards and/or smartphones, avoiding lines and saving time. Some retailers are now developing high-tech visualization tools where customers can receive personalized, shopper-type customized information about size and color options, styling and visual presentation tips, and recommendations for complementary items. These technologies also allow retailers to gather high-level data, such as how many items were viewed, dwell times, and conversion/bounce rates by product. Each of these concepts creates opportunities for increased customer engagement.

Beyond sales transactions, return policies and procedures are becoming more important in customer relationship management. As eCommerce grows, a typical retailer experiences approximately 20% of online orders being returned. RFID technologies enable accurate and efficient returns processing, allowing returned goods to be reposted as prime stock inventory quickly, reducing margin compression in reverse logistics.

RFID and the Supply Chain

Retailers feel RFID will continue to unlock process management improvements, creating better allocation of resources and reducing logistical bottlenecks with freight providers. RFID is experiencing such broad adoption that many retailers request that products be delivered to their receiving docks with RFID already built in. Some online retailers report that approximately 70% of items in their online catalog are tagged via RFID before arrival at their distribution centers. Factories and manufacturers tagging products at the source can provide greater process and labor efficiencies than distribution centers and stores. These technologies improve supply-chain visibility so retailers can tighten inventory receiving schedules and manufacturers can more accurately track outflows and shipping. This allows for improved timing of raw materials ordering and production schedule planning.

RFID Implementation

Many enterprises rely on third-party integrators to roll out RFID systems. These integrators provide value chain expertise and impartial recommendations for optimized (both in terms of long-term flexibility and near-term economics) system rollouts and ongoing “control tower” skill sets for retailers. Strategic integrators also provide data analytics assessments that can be used to ensure accurate and usable information is available to all organizational functions.

RFID technology allows organizations to locate inventory better, measure stock levels, replenish distribution networks, and complete customer fulfillment processes, proving it can help retailers increase revenue and lower costs. Going forward, we believe RFID technology can increase customer engagement via higher levels of personal customization and more efficient and enjoyable shopping experiences.