Retailers know that every T-shirt counts.
So to get a better handle on inventory, downtown L.A. clothing company American Apparel Inc. last month tapped Senitron Corp., a four-year-old West L.A. company, to deploy its proprietary radio-frequency identification inventory control technology in 50 of its 175 North American stores.
The system uses sensors mounted in stores’ lighting systems to read electronic tags on each piece of merchandise. It is designed to improve inventory control and is far less labor intensive than taking inventory by having employees scan each item with a handheld reader.
The system, coupled with efficiencies in the clothing maker’s distribution structure, could help American Apparel’s bottom line, according to David King, an analyst at Roth Capital Partners in Newport Beach.
“All of these things help drive margin improvement,” King said. “It’s the next leg in getting investors interested.”
American Apparel would not talk about the RFID system. But it is Senitron’s first customer to use the system for inventory control and the company said that has sparked discussions with at least three more potential customers.
RFID tags are electronic, which means each item that has a tag – a specific T-shirt of a certain size and color, for example – can be pinpointed by a reader that might be yards away. The RFID industry has long held promise but has been slower than some expected to catch on.
Wal-Mart Stores Inc., which started tracking its products through RFID a decade ago, is the largest retailer to implement the technology and remains a pioneer. California Fashion Association President Ilse Metchek said cost was a factor.
“It used to be 25 cents a tag, incredibly expensive,” Metchek said. “Up until this point, people have not embraced it and are now just starting to think about it, but it has a long way to go.”
According to Gary Rhodes, an RFID consultant with Remonix Inc.’s San Jose office, the cost of some tags has fallen to less than 5 cents, low enough to catch the interest of some companies.
“Any industry looking to improve efficiency would be interested in this,” Rhodes said. “The cost of the technology is starting to come down where it makes sense.”
It is a market that has drawn attention from large technology companies like Motorola Solutions Inc. in Illinois and Switzerland’s Tyco Retail Solutions. Motorola offers RFID readers, tags, antennas and software. Tyco said in July that it was working with 10 department stores and fashion retailers to pilot and deploy RFID systems.
Senitron installs and provides the readers for the American Apparel system. The RFID labels are created by integrating chips from Impinj Inc. of Seattle with tags made by Glendale’s Avery Dennison Corp.
“Once you have the tags, you need to have the readers,” said Andrew Gassiot, a senior sales director at Impinj. “Senitron puts the business intelligence into the infrastructure and the retail floor is where all of our systems meet.”
Each of Senitron’s light-mounted readers can connect to 12 to 15 antennas above the sales floor, keeping track of an average America Apparel store’s inventory of 75,000 items. Using a smartphone app or computer, employees at the company’s corporate headquarters can track and count every item in every store with the push of a button.
“We provide the means for retailers to put an item where they want it, not where the customer left it,” said John Armstrong, Senitron’s chief technology officer. “Wouldn’t it be nice to get a store back together after Black Friday in a few minutes?”
Shift in focus
Senitron, which has just four employees, contracts with outside companies to do installations. While the company would not discuss revenue, Armstrong said it costs about $50 a day to run the system in a typical 1,000- to 5,000-square-foot American Apparel store. That would equate to about $900,000 in annual revenue from the 50 American Apparel stores.
Senitron started four years ago using RFID as a loss-prevention system for retailers. That market stalled, however, and the company began looking for a new direction.
Chief Executive Kambiz Saghezi, who had experience in retail, decided to steer the company toward using RFID to manage inventory instead of security.
The idea resonated with American Apparel, which Armstrong described as the perfect client because it already had an RFID structure in place.
“American Apparel had the right people and the right practices,” Armstrong said. “If we could make it work for them, it would be a slam dunk for everyone else.”
He added that while the technology had been slow to gain acceptance, he believes the tide is turning.
“RFID this year is really coming out into its own,” he said. “This is the right time for us to come out.”
Armstrong said he would love to work with stores such as Wal-Mart, but those clients are too big for his four-man team.
“That’d be like a snake eating a rhino right now,” he said.
