Reducing shrink, overstock and waste
A major challenge for many beauty brands and retailers is shrink and subsequent product diversion, which results in billions of dollars in industry losses. These losses occur certainly in the cost of goods, but perhaps more importantly in damage inflicted to brand equity. The majority of stolen and diverted items are sold through unauthorized channels, where the brand no longer exercises any control over product integrity, safety and brand messaging. While shrinkage can occur in the retail store, more significant losses often occur in the supply chain - from factory, through distribution, to retail. In this proof of concept, RFID-tagged items were audited both exiting the distribution center and entering the retail stores. Significant losses were identified, where products that left the DC did not arrive at the retail stores. The complete transparency of supply chains, made possible by an RFID digital identity makes individual items entirely traceable, so brands and retailers can pinpoint exactly where shrinkage is occurring and take appropriate actions to mitigate it.
An item level RFID digital identity also can reduce waste of beauty products. This proof of concept identified significant overstocking in subject retail stores, as well as the opportunity to reduce on-hand inventory by approximately 25%, while increasing in-store, online availability and revenue. Applied across hundreds of stores, this reduction would represent a substantial savings in working capital. Also, it provides the beauty brand increased flexibility to produce and offer a broader assortment of products without overburdening supply chains and stores.
Of note, in one of the brand’s highest velocity stores a staggering 20%+ of inventory was identified as non-saleable, due either to being out of season or past expiry date. The opportunity to reduce waste and minimize sales losses is obvious, but the implications of an item-level RFID digital identity go far beyond the tangible commercial gains; the unprecedented levels of visibility allows beauty brands and retailers to avoid disposing of a high volume of expired products and packaging, in addition to the reduction in consumption of raw materials, energy and other resources required to produce them. That’s important for an industry that produces more than 120 billion units of packaging globally.2
As beauty consumers increasingly are holding brands accountable to high standards for sustainability, the need to radically improve inventory management to avoid excesses, reduce waste and provide transparency is essential to building brand trust and a positive customer experience.