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Levi Strauss Tries on RFID for Size
Item-level pilot reduces out of stocks

Frontline Solutions | June 1, 2005
By: Brian Albright

Levi Strauss & Co. has launched an item-level radio frequency identification (RFID) pilot at one of its retail stores in Mexico. Thirty days into the test, the company has already improved its in-stocks at the pilot store.

"We have been pretty aggressive," said David Bergen, senior vice president and chief information officer at Levi Strauss. "We're excited and encouraged by some of the early results we're seeing." Bergen discussed the pilot during last week's Retail Systems conference in Chicago.

Levi Strauss started investigating RFID in 2003 after being approached by retailers in Mexico and Europe, and after Wal-Mart announced it would require suppliers to use the tags.

The test store is a Levi Strauss retail location in a shopping mall near Mexico City. The pilot went live April 28 and will run for three months, with an evaluation in July.

All of the garments destined for the pilot store are flagged and diverted for tagging as part of an existing value-added services system at the distribution center. The tags (inside the price labels) are read as they are loaded onto the truck and then scanned again at the store. Shelf inventory is checked with a cabled, hand-held reader that looks a bit like a vacuum cleaner. "We didn't pick the fastest solution," Bergen said. "We picked the most reliable one."

Bergen said that IBM was assisting with the project, but declined to name the other vendors. Integrator R4 Global Solutions (recently acquired by VeriSign) is also working with Levi.

For the test, Levi wanted to improve its in-stock rate at the store (previously at 80%), improve inventory accuracy and automate replenishment. So far, results are promising. The in-stock rate is now at 99%, in part because the store now does a 30-minute inventory count every morning, as opposed to a lengthier count once a month. "There is substantial value in accurate inventory," Bergen said.

Reducing out of stocks will account for 70% of RFID's benefits, based on Levi's estimates. "This is not a cure-all for out of stocks, though," Bergen said.

The company plans to read the tags at the point of sale, which can automatically decrement the store inventory.

Bergen said Levi Strauss is cognizant of the privacy concerns that have dogged European garment-level RFID projects, so the price labels and signs in the store include explanations about the technology.

In addition to the Mexico City pilot, Levi will tag cases and pallets for Wal-Mart and Target in what Bergen describes as a "slap-and-ship" operation (the company will be live with Wal-Mart by the end of the year). However, Bergen said the biggest returns will come from item-level tagging.

"There's a direct correlation between the level of tagging and the value of the return," Bergen said. "We expect substantial return at the item level. We'll get very little return on case and pallet tagging."

The reason Levi Strauss -- and other apparel manufacturers, for that matter -- have been more aggressive at the item level than other companies is that they can benefit from more granular tracking of size and color assortments.

Another potential benefit, particularly in foreign markets, is that RFID can help reduce diversion and identify counterfeit goods. "That's a side benefit-that we could control those problems," Bergen said.

Before the company can expand its RFID efforts, though, tag prices (currently 67% of total system cost) need to drop. "The costs are too high today," Bergen said. "[But] we believe that it's only a matter of time before the prices come down, and we want to be ready."

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