Apparel brand Pacific Sunwear of California Inc., better known as PacSun, is piloting radio-frequency identification, known as RFID, in three of its stores. It will deploy the pilot in June 2023.
The goal is to increase its inventory accuracy, which would reduce split shipments, co-CEO Michael Relich told Digital Commerce 360 at the Manhattan Associates Inc. Momentum 2023 conference in May in Phoenix.
The retailer wants to reduce its split shipment rate, which is when an ecommerce order with more than one product ships in multiple packages. This is especially prevalent when retail chains ship online orders from stores and distribution centers. PacSun recently launched ship-from-store from its 315 stores in 2020 and seeks to reduce its split shipment rate.
Relich cites average industry data he’s seen through his tenure as store inventory being 70% accurate and average omnichannel retailers shipping 1.5 packages per every order.
With PacSun having an average order of 2.1 units per transactions, and store fulfilling roughly 20% of orders, its split shipments were high, he said without revealing the rate. Fulfillment vendor Narvar Inc. reports that 21% of orders from an online retailer arrive in more than one shipment, according to data from collected October-December 2021.
Store inventory inaccuracies lead to split shipments
For example, if a store’s inventory accuracy is only in the 70% range, the order management system could allocate an ecommerce order to a store to fulfill. But with inaccurate inventory, there is a chance the store doesn’t have the entire order, so the store will fulfill some of it, reject the other part of the order and the system will select the next-best store location to fulfill the rest of the order. This results in a split shipment.
“If we can get down to almost zero split shipments that would be huge,” Relich said.
Split shipments are not only a bad experience for the shopper, who wants to receive their order all at once, this costs the merchant.
“Parcel rates have almost doubled in the past two years, so split shipments end up costing you quite a bit,” Relich said.
With RFID, store inventory accuracy can improve to be more than 97-98% accurate, said Amy Tennent, senior director of product development at Manhattan Associates. This is a large jump from the average, which Tennent said is around 65-70% accurate.
PacSun is currently implementing Manhattan Associate’s Point of Sale system, which will go live in 2024. The POS works with the Manhattan RFID system, but because it is not yet live with that system, PacSun is piloting the effectiveness of RFID with a different vendor, Relich said without disclosing that vendor.
More frequent inventory counts with RFID
With RFID, PacSun plans to do an inventory count of the store a few times a week, which should take 20 minutes each. This is much more frequent than conducting an inventory count a few times a year, which is what it does now, he said.
With just twice a year, a store’s inventory count could be off by 500 units per store, making it hard to determine what happened, Relich said. With frequent counts, a store manager or PacSun management can find out a store is suddenly down 100 units. The manager can then look into why, such as if it didn’t receive a scheduled shipment earlier that week, or if the shipment was missing a box. This will hopefully allow the brand to find and rectify inaccuracies faster.
Tennent said RFID is getting more popular within the retail industry as costs of RFID tags and chips have decreased to just a few cents, compared with 80 cents to more than a $1 a few years go. Plus, a number of brand manufacturers, such as Levi’s Strauss and Co., are already embedding RFID in their products, which eliminates this cost and step for retailers that carry those brands and want to implement RFID.
At Manhattan Associates, it announced one of its software now has an RFID integration with Zebra hardware devices. From 2019-2021, only about one or two of Manhattan’s customers have piloted and used RFID. But today, around 18 customers are looking into launching the technology, Tennent said without providing details.
RFID could help theft
“Now with omnichannel, you have buy online, pick up in store, you have buy online, ship from store, you have local delivery,” Relich said. “And then the shrink issue, which has increased for every retailer. So, the ROI on RFID has changed.”
“What omnichannel has done, it’s really pushed the need for inventory accuracy,” Relich added.
Shrink is the retail industry term for loss of inventory, which includes theft from external criminals, employee theft, procedural errors, such as forgetting to scan in an item, and shipment errors, such as not receiving the correct inventory from the carrier.
Theft is another reason stores may have an inaccurate inventory count, which also could lead to split shipments, Relich said. If the system thinks the store has a certain item, it will allocate an order for that store, but if a criminal stole that item, PacSun can’t fulfill the entire order and the order will split.
“Shrink levels are increasing for almost all retailers,” Relich said.
Eliminating safety stock on the commerce site
More accurate inventory at the store level eliminates the need for safety stock, or stock a merchant doesn’t expose online in case it does get an online order for a product.
PacSun, however, has never used safety stock because it never buys deeply on any one of its fashion products.
“If I put a safety stock of one in my store, that would pull 500,000 units off the website,” Relich said.
Plus, PacSun wants to expose as much inventory as possible online. Even if a product is no longer available in a distribution center or the product is in various sizes spread across its store network, it’s advantageous for the retailer to sell that product online at full price rather than marking it down at store.
“If I walk into a store and I see a top all by itself, you expect to get a discount, because who wants it?” Relich said. “But online, I have that top in 300 stores, so I have full assortment. So it enables us to sell the goods at a much higher margin.”
PacSun is No. 239 in the 2023 Digital Commerce 360 Top 1000.
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