250 million reasons for Wal-Mart's RFID exploits

Harnessing RFID (radio frequency identification) technology to reduce retail shelf out-of-stocks and improve inventory profitability could generate an additional $250 million in annual sales, on a global basis, at Wal-Mart Stores Inc.

"This is certainly grabbing our attention," said Nicole O'Connor, Director of ISD at Wal-Mart Canada Corp.

Wal-Mart is the largest retailer, largest private employer and second largest corporation in the world (after ExxonMobil).

O'Connor was speaking at the Collaborative Supply Chain Forum held earlier this week in Mississauga, Ont.

In an address titled Using EPC/RFID to Increase Product Visibility, the Wal-Mart executive detailed the tremendous benefits – current and anticipated – Wal-Mart and all its stakeholders are experiencing from this technology.

In the case of Wal-Mart customers, she said, the gains are very tangible.

For instance, the retail behemoth estimates that of the seven million people who shop at Wal-Mart stores each week, around 100,000 currently need to make a second trip because the merchandize they seek is not in stock the first time.

"If [by improving inventory management via RFID technology] we could eliminate the extra trip for these 100,000 customers, we could [collectively] save them 15,097 litres of gas – and $5.7 million a year," O'Connor said.

Wal-Mart's early adoption of RFID, she said, is inextricably linked to the retailer's "everyday low price" objective.

"Sam Walton (Wal-Mart founder) said years ago that we [serve as] an agent for our customers. That focus hasn't changed, and it's demonstrated in our everyday low price mandate."

At Wal-Mart Canada, she said, RFID is being used to execute on that mandate in four key ways:

Reducing out-of-stocks – O'Connor cited findings from a 2003 University of Arkansas 29-week study that RFID enables a 32 per cent reduction in out-of-stocks.

She said Wal-Mart's U.S. stores have validated this conclusion with their own internal tests that show similar dramatic improvements in stocks through RFID.

This has a poweful and positive impact on sales, the Wal-Mart executive said.

She said studies show out-of-stocks result in a minimum two per cent loss in sales - a significant number given the scope and breadth of Wal-Mart's operations. (Wal-Mart's annual sales revenues are estimated at around US$350 billion)).