Avery Dennison Corporation (AVY) Earnings Call Transcript & Summary

All right. Well, thank you for coming. I am Julie Vargas, and there's this incredible group on the stage with me, I'll let them introduce themselves. And we're really excited to share with you what's going on with retail at your front door. But as many of you know, I love to start these things off with a little bit of audience participation. So I want you to think about your front door, your doorstep. Raise your hands if you receive at least 1 package on your doorstep on a weekly basis. Okay. All right. Keep your hand up if your household is receiving 3 on average parcels on a weekly basis. All right. Anyone getting 5 on an average on a weekly basis? Yes, anyone more than 10? I see you, fantastic. Thank you. This is actually -- it's really phenomenal. We saw the huge surge during the pandemic, but we're still running at a much higher rate than we were when I first started here at NRF 15 years ago. So if you were from Brazil or India, your average -- your country average is 1 parcel per household per week. If you are in Germany, most of Europe or Japan, it's two per week. If you are in the U.S. or the U.K., we average 3 on an average basis -- on a weekly basis for households. And in China, it's 4 or more. So more and more things are showing up at our doorstep. And it was revealed earlier, back last fall, at a GS1 event at MIT, they were talking about retail moving even into our home, things like delivering groceries into our fridge. And so it is increasingly important not only to be able to let your customers buy what they want, whenever they want, however they want and have it delivered wherever they want. As consumers, we're also more demanding. So we want it faster and we want to also feel special. All of that comes with the trend cycle that's accelerating. And this panel, we're going to walk through all of the different elements of that and then where it's going for the future. So as I said, I'm Julie Vargas, I am with Avery Dennison. I've had the privilege of working in this -- in technology for about 15 years, thinking about the intersection of physical and digital. And I've had -- we've seen this crazy rise of the omnichannel commerce, but also what the consumer is expecting. And that's going to start off our conversation. So we'll start with you, Sasha. If you'll introduce yourself and talk to us a bit about what consumers -- how we're evolving and what we're expecting to see in physical and digital.

Thank you, Julie. Well, delighted to be here. I know you've been here almost 15 years, this is almost your 15th appearance at NRF. This is my first. And I think that's really interesting because I've been in the field for quite some time. I've been a Chief Marketing Officer, at fantastic fashion, luxury and health and wellness brands. However, I've been skewing towards the technology side. But at this point in time, the retail and technology infrastructures are coming together. We just came off the heels of CES, where there have been some really exciting innovations, Microsoft is adding their copilot to the keyboard. There's a lot of different -- I think we're at almost $300 billion estimation for gaming infrastructure from a retail commerce perspective, that should be light -- right up in each of your ears and heads and then also, there's a really exciting connectivity, as you're saying, in the sense of NFC chips, RFID chips and different connection points between the physical product and the virtual experience. So that's sort of the work that I've been advising clients on and I get the pleasure to develop within my organization, Blockchain Style Lab. And I think that what's really exciting about this space and this time is that the possibilities truly are endless. As Julie mentioned, the retail -- the future of retail is at your front door. But honestly, who of us has not spent time on their computers, on their phones, shopping inside their home, right? And so I think it's even like opening the intimacy channel, having that experiential moment, being able to think immersive, we have something coming up this -- next year, the Apple's Vision Pro headset that's going to channel our spatial computing possibilities to the next level. So the terrain is vast, and the consumer is going to want to spend where they're spending their time. I also want to mention, too, that this roadblocks ecosystem, the various gaming platforms have been selling virtual merchandise, Verch, for quite some time. That's another area of interest that as GenZ and Gen Alpha, who are very opinionated consumers become more -- have more shopping power to impact, we're really going to have to stay track of. So that's just a little bit about me and what I enjoy and then also where I think the future lies from a trend in consumer status into 2024 and beyond.

And all of that is -- it's all there. And all of these different digital spaces, all of these places to buy and interact. We also want to feel special. But at the end of the day, we have to get the products to the right doorstep as fast as possible. So I'd love to hear from you, Darrell, just how do you see the -- your -- well, tell us about your role and how do you see it evolving for retail.

Sure. My name is Darrell Ford. I'm a Vice President of Ops Technology at UPS. And my team is developing deploy technology that are related to scanning systems, international systems and automation systems. And obviously, RFID, although it's not scanning, it's sensing, that's a part of scanning. So my team is responsible for our program, which we call SPSF, Smart Package Smart Facility. And the program started -- we've looked for years and years to get an entry into the RFID world. And we really started really hard in 2021, where we made the decision that we were going to put an RFID tag in every package. And when we developed the plan, we really looked at it in 4 -- we call them waves or phases. And the first phase that we were thinking about is how do we eliminate all this manual scanning that we do at UPS and replace it with sensing. And more importantly, how do we take that and enhance the customer experience and provide them additional services or better service from utilizing our technology. So I'll just go through really briefly the waves. The first wave was Wave 1, that was in 2023, and we applied an RFID tag on every package at the Final Mile delivery center. What does that do for UPS and our customers? It reduces a great number of defects. It's not uncommon for our loaders to put a package on the wrong delivery vehicle. And when they do that, it's a poor customer experience. Your customers get their package late and it's not good for UPS. So by utilizing the RFID technology and readers, we're able to reduce those defects. And now the loaders get notifications about when they're in the wrong vehicle and we can -- it can remove that defect. That's Wave 1. Wave 2 is called in-vehicle, and we're doing that this year. We're installing readers in our packaged cars. Now we're taking what we're doing on our -- we call them the preload when we load the vehicles. We're giving them additional visibility at the time they're loading the vehicle, but more importantly, those vehicles now have readers on the road, right? What is a very frustrating part of shipping with UPS sometimes. And it happens to me, and I was talking to Rusty the other day about it. You, as a retailer, you print a label. We know you printed the label. It says the label is printed. The next thing is it could be 3 days before you see your next event because that's when it gets to 1 of our facilities. Well, with Wave 2 and Wave 4, we're eliminating that. So now customers print RFID enabled labels whether it gets picked up by a tracker or a package car or a tractor, we immediately sense it. And now we have much improved visibility for the retail customers and our customers as well. And what we're trying to do is build milestones that matter, right? We want to show you every step of the way along the supply chain through our network where your package is, when you can expect it to be at the next location and really just enhance that visibility. It's really -- we're really customer first in this program. It's funny. When I first went into it, I'm thinking as an engineer and how I can improve our business but at the end of the day, the real value is how we unlock visibility for our customers.

Great. It's kind of that amazing intersect of efficiency and accuracy and all of that. And leading the way, and I want to give Traci a moment to introduce herself as well because along that chain, there are incredible hot brands like Southern Fried Cotton that are doing incredible things as far as keeping up with the speed of the trend cycle and how they're thinking about delivering to their wholesale partners and to their e-commerce customers and the partnership with shippers in that ecosystem?

Thanks, Julie. I actually was super excited to hear what Darrell has to say. I'm ready for those RFID chips in those UPS labels. But I am Traci Harrington, I am in wholesale for Southern Fried Cotton. We are in Upstate South Carolina. Company started in 2012 with the wholesale side of things. 2016, we partnered with Avery Dennison to start the process of adding RFID tagging, sheerly for the purpose of we were having a lot of accuracy errors in our shipments, which led to a lot of chargebacks, which led to a lot coming off of our bottom line. Partnered with Avery Dennison to start tagging everything with RFID tags. We are a screen printer. It is a T-shirt centric business. We screen print. We ship to approximately, I think, 300 retailers across the country. So what happened with that, we have a high-density read chamber in our warehouse, a cooker as I like to call it, that allows us to put our product into this chamber, and it tells me exactly what's in my box, then I can translate that to my customer that's getting ready to receive it. I think the biggest takeaway for me that I want to share is we are a -- the actual company, including our print staff we may have 30 people, and we operate under one roof. So we are not Nike. We are not this huge conglomerate. We do not use a third-party warehouse. This is all scalable to what you need. And the beauty of partnering with somebody like Avery Dennison, and we also have been a UPS customer for a long, long time too, but the beauty of that and that relationship is they were able to come in and say, hey, guess what, we can do this in bite-size chunks and make it work. And we quickly recouped the investment based on what we were not getting charged back anymore, which made the bosses happy. It's also because it's a small company, there's not a lot of red tape to cut through. It's RFID technology has been beautiful. And like I said, I cannot -- from the consumer side of things, I cannot wait for this to happen. And then also the other piece of where things get hung up because we are a screen printer, so we've got blank apparel coming in from our vendors. If that ends up on the wrong truck, if that ends up in the wrong service center, if that ends up in the wrong hands, guess what? It doesn't make it to us on time. The shirts don't get printed on time. Our customer doesn't get what they have ordered. They're on the phone, not happy because they're not getting the product out either. So there's so many moving parts to get it from start to your front door.

It's moving faster than ever as well, right? So I think it's -- I would be interested to hear. So we thought -- we talked a lot about kind of thinking back about a decade ago, inventory when omnichannel retail was taking off, e-commerce, what do you have. And how do you get it out of the door. But thinking about the intersect of these 2 worlds and now everything is moving fast. We all became supply chain experts during the pandemic, I believe, but one thing was for certain, there was a need to make sure that you could optimize inventory even not in transit, but also consumers want to know when it's coming, when it's shipped, when it's going to arrive, we're much more demanding around the data that we're asking for too. Any perspective on kind of how the 2 come together and what you're thinking through there.

It's really -- what's ahead of us is what's most exciting because a lot of retailers are tagging their merchandise today. And they're doing it for various reasons, shortage control and inventory control. But now that UPS is building out an RFID network, think about what we can unlock if we share information with each other. If you're a retailer and you're having goods being stolen and we can tell you where that package ended up, I mean, think about things that we can unlock. I think -- there's just so many different services that working together, we could introduce that are going to help both of our businesses. That's what's exciting about it for me.

Yes, it is. And going back to the consumer for a minute. So think about that, that's fantastic. And then as the consumer is wanting more and more information in multiple different places, they want to shop different places. How -- they don't need to know what RFID is or what cookers are, although I love that as a new branding term, which is awesome. But if you think about what they're expecting, what does that look like? And how does it continue to evolve because one thing is for certain, no matter what diverse digital channels and how commerce evolves into where we buy. At the end of the day, a physical product has to get into the hands of the person buying it, right? So what's your take on that, Sasha?

Yes. Thank you. I mean I think it's a very prevalent question that we're all asking ourselves at this point in time, both from preparing the product to getting it to literally our front doors. And I spend a lot of time in the future. So it's good to roll me back to the present in the physical. I think one thing that's really critical is that, again, I mentioned GenZ and Gen Alpha, are expecting -- I hasten to say omnichannel, but a spatial -- a complete holistic immersive experience. So if a package is delayed, that only provides evidence to the fact that physical is not immediate. And I think that culture is something that we need to prepare for. And it's also really important to understand too, I work in Web 3, right? And so Web 3 is the progression from Web 1, getting us online, Web 2 having social media accounts and Web 3, having agency over our data. Now when the consumer has agency over their data, we talked a little bit about this in our prep call, I can track a package that's late as the consumer, and I can see where it is. I actually spent time watching this holiday season, a couple of packages that weren't getting to me. But because I had the information to have data at my fingertips, I could be informed and see where they were in a way that I would have maybe 5 or 10 years ago called customer service to have them require. So I think with that power, as the very famous superhero once said, comes great responsibility. And I think in that vein, we, as providers, we as brands and we as businesses have a lot of due diligence to do to the consumer, but also to our partners. And it really comes down to creativity, collaboration and community and understanding that each of those pillars are truly where we're functioning at this point in time. So that's just a little nod of optimism, but certainly watching how we have the power to inform that trajectory of where we are today because the future is getting closer as we speak.

So interesting, we're so needy as consumers, right? So we want the efficiency, we want it really fast. We want the information, and then we also want to feel special. So just we talked about this a little bit Traci around how do we -- if you're thinking about your brand, fast runs you got to turn those T-shirts that are coming on time, so you get them out on time, but you're servicing a lot of people. How do you think about service to your wholesale partners, but also helping your end consumer feel special. And I'd love to -- a follow-up question on that, [indiscernible] and what's the role of kind of how that extends all the way to the front door?

Julie, I think for us, because we are so much -- the side that I work on is so B2B. And there's just once you start something, once you've gotten the products in their hands quickly, well, guess what, that expectation is set. So then if there is a hiccup in the system or whatever, you've got to scramble to make it okay and what does that look like. But like Sasha just mentioned, the building a relationship with your partners, makes that so much better. And just the transparency of everything. And it's -- we may not have the biggest volume going out the door, but we are also shipping to a more boutique style, smaller customer that they have this certain expectation as a consumer of when they're going to get this stuff and being able to track this. And I will tell you they are super quick to pick up the phone and wanting to know where their stuff is. They -- that is -- and then -- and you're scrambling because just like we were talking about that your label has been created but that package is not then picked up yet. So you can't see it. They want to know that too. We want to know that. Now the beauty of we have a UPS run every day, so our stuff is going out on a daily basis. But there's just so many pieces to where glitches can happen in the system. And then going back to accuracy, making sure that the correct product is shipped because that can happen too and that's not a UPS problem. That becomes an in-house problem. So that's another piece of where RFID technology can come in to make sure what goes into that box and what goes into that -- gets to that front door is the right thing. So I hope that answered.

Yes, and then just thinking through, okay, -- and so Smart Package Smart Facility and your road map. What's -- how do you see this all evolving from the lens of your shippers and also the consumer?

Expectations, as you said earlier, are becoming increasingly important to the consumer and that visibility, and we all did this. We just passed the holiday season. Everybody ordered something.

Still on recovery, right?

Yes. You're still in recovery. And I do want to thank everyone that raised their hands that they ordered 4 or 5 boxes a week and continue to order more. Thank you. But the expectations are getting tighter and tighter and greater on us. And as a package travels through our network, there are a lot of opportunities for defects and we are utilizing this technology to really just minimize those and improve the customer experience. When you think about today, when a driver delivers a package to your home, a UPS driver, because they're the only ones, they have to do -- there's some physical activities that they have to do to say that they delivered that package. Well, now that we have a reader on the car, when the package comes off the car, we know it's not there anymore, it's been disassociated. We have a GPS on the vehicle. So we know where they are. So we can say, oh, yes, that package came off at that address, and it was delivered. Where today, we have to do some manual things, and it's much more accurate than what we're doing today. So I think we're able to really enhance those expectations and give greater visibility. And I said it earlier, we're creating milestones that matter. When you track a UPS package today, you can go in and see certain things that happened throughout the network. We're just adding information to those, more granular detail, more accuracy. And I think it's great for the retailers and for the consumers.

Yes. And I'm excited for the evolution piece that we talked through where everyone's seen like the graphics of the supply chain. So there's the icon of the supplier and the distributor, I actually think there's this incredible overlap that's going to be driven around kind of how you share understand data to make sure that you're making the right things at the right time and delivering as fast as possible. There's a lot of complexities and starts and stops, but your leadership and kind of how you're thinking about uniting that at the retail level has been really interesting.

Not just at an enterprise level. We have all of the enterprise customers, but this is something that SMEs can take advantage of just as easily as anyone else. And I think it really unlocks value for them because it's a differentiator from them and their competitors, where they've got this enhanced visibility that maybe another small business does not have and improves their opportunities.

Yes. And that's what you were saying too Traci is just how that...

And then -- and being -- again, being able to partner with you guys, it doesn't matter that we're a small business. And that is kind of my -- what I want you to hear is you still have the same access to the same amazing technology, to the same partnerships to be able to do this and to make everything transparent for your customer.

Fantastic. Okay. Well, I know that we're -- we want -- we had to participate in the beginning and then we're also really good at -- also call to action what you're going to take out the door. So curious, and we'll start with you, Sasha. What is the 1 thing you want this room to take with them or any call to action you have?

Yes. Thank you. I mean I think what strikes me having this conversation is that we are all now a luxury consumer. We are all expecting the [indiscernible] approach at our front door. And so that -- given that status, it doesn't really matter for a B2B, B2C. Everybody is that Gucci, Hermes, [indiscernible] brands consumer when they're shopping at their front door. So they're expecting a certain level of service that is only becoming more experiential and immersive. So again, to me, that has a lot of inspiration. There's a lot of creativity. There's a lot of community that's built when that exists, you have a community that's right for the picking that you can make in a micro community or in a global community. So I think there's a lot of opportunity there. And then I really believe in this collaboration. It's wonderful to see the partnership. It's wonderful to see the collaborations that exist between brands, vendor, retailer, pick one. And actually don't pick one, pick more. So I think there's expansive hope, and I'm really excited for the future of retail.

Thanks, Sasha. Traci?

The only thing I keep thinking about and keep going back to is how quickly things are happening and what the expectation is. Your clientele are all different, whether your clientele are genext who expect more of a relationship and a personal touch, which sometimes in e-commerce gets lost or whether you are my 17-year-old that thinks he ordered it 10 minutes ago, and it should be on my porch by this afternoon. So trying to merge the best of both worlds and keep everybody happy, which we know we can't keep everybody happy. But doing what we can to kind of support a more global population and what everybody needs and making it visible and transparent, which is what you're doing such a great job at.

For me, at UPS, we are extremely committed to this program. And if you listen to our earnings announcement in the past several quarters, our CEO, Carol Tome, talks about it a lot. So we're committed. We're doing this. We have a very well-defined road map. We know where we want to go. We know we can unlock value for the retailers and the consumers, and we're going to continue to engage with some of our retailers to say, Hey, look, this year 2024. How about you origin tag, RFID tag your packages and we can unlock some great values for you. So we're fully committed. I think we're the only one in the industry that's doing it right now. So it separates us. We're well ahead of anyone else that's going to try and do it. So for us, it's about a commitment that we're making, and we're really hoping we can get the volume from the retailers. Yes.

Fantastic. Yes. No, I think -- and consumers will pull that for you in some places. And I mean, just to think about all of the layers of where this is happening and how fast it's accelerating. I'll end with Sasha, which is there is an ecosystem and a partnership piece but it's also not about understanding the technology or getting deep into that. At the end of the day, a lot of the things that we do are still very manual. We still have a lot of things that could build deeper levels of efficiency. We've been printing information on things for a long time and now how do you actually connect them at a completely different level. And so my call to action to this group is just think through what your world looks like, if it's not enough to physically count, menu scan or physically print and then what that data set gives you in a whole new role that is exponentially growing from that perspective as well. Any other final thoughts from the panel?

Quicker. Coming closer and quicker each year. So it's great you're here. And I'm looking forward to NRF and learning more about the future of retail as a whole. So thank you.

All right. Fantastic. Keep ordering packages. They'll be on your doorstep accelerating every day. I think we're up 5x over the last 5 years. And I'm sure we'll continue to accelerate. You are in retail. The expectation is we want to see you in the store. We still go there. We still want to do everything we've always done, but now we want to buy what we want, where we want it, have it delivered where we want it as fast as possible and still feel special in the process. Enjoy, interact, and thanks for your time this morning.

My name is Marshall Kay and Avery Dennison is so thankful you're here. We're very proud of the work we do, connecting the digital world and the physical world. We're a market leader in connected products and what makes us so excited about connected consumer goods is we know that when everything is connected, everything changes, and it unlocks a set of new possibilities and one realm within the world of retail that is tapping into these new set of possibilities is the realm that's known as loss prevention but today, we won't simply be talking about loss prevention. Let's face it. It would be wonderful if we're able to apprehend a thief before they even leave the store with an item. We're also going to be talking about loss detection and lost visibility. Think about it this way. If only the thief were kind enough to leave a note of all the items that they've taken before they leave the store, that would be a huge win for retailers. So I'm thrilled to be joined on stage by three friends of mine who are each legends in their own rights. I'm going to ask each of you to make a brief introduction and if you're too humble, I might need to supplement.

Okay. Read Hayes, University of Florida, and the LPRC or loss prevention research council.

Joe Coll, I lead asset protection for Macy's department stores and I have the privilege of sitting between 2 doctors on a very special day as we pay respect to Dr. Martin Luther King.

Good afternoon. Bill Hardgrave. I've been in the RFID space for 20-plus years, started working with Walmart when they made the big announcement back in 2003 and been in it since then. And in my spare time, I'm the President of the University of Memphis.

Okay. Now I'm going to supplement a little bit. When big national media outlets need to talk to an expert about loss prevention and loss detection, they come down to Florida to visit Read. Now with Joe, in terms of the world of retail asset protection, in terms of asset protection professionals who work for retailers, in terms of experts on the use of RFID in the many ways it can be put to great use, Joe is amongst the top 3 in the world, maybe even the first, but that's not what we're here to talk about right now in terms of knowing how to use RFID and put it to effective use for his organization. And then with our friend, Bill, when it comes to inventory accuracy in retail, if you were to look in the dictionary under that term, you would probably find Bill's picture. You put that issue on the map and the fixability of that problem. So now I'm going to say a few things before asking some questions. I think it's important if you work for a retailer or a brand and you're in loss prevention or asset protection and you're thinking, this topic sounds interesting, but I don't know if it really applies to what I sell. I suggest you think again, and here's why. When it comes to the price point of merchandise that is today getting the benefit of smart labels, we're seeing lots of merchandise under $5, under $4. I've even seen something that sells for $0.99. So that's the reason number 1. Reason number 2 is the nature of the merchandise. There's been a misperception that RFID perhaps is most relevant for soft goods, like apparel and towels, linen, things of that nature. Today, we're tagging so many other goods. We're getting to a point where if you sell it, we can tag it. Things with liquids and metals, fragrances, lipsticks, you can tag a frying pan. So from that perspective, too, this is more relevant to you than you probably think. And then the third thing I'll quickly mention is there are many different ways to connect a smart label, smart sensor to a consumer good. A very common way is with the paper ticket and that generates a lot of value. But there are many other thoughtful ways, including integrating into the product or with the adhesive method as well. So there are many, many ways to keep that smart sensor connected to your item. So with that being said, let's get into it. I'd like to start with you, Bill. Like I said, inventory accuracy is something that is so, so important. So why don't you tell us a little bit about that issue and why it's so important to beginning to solve the problem?

Yes. So for several years, we've been talking about really making -- getting inventory accuracy as high as possible, right, because without high inventory accuracy, good store and retail execution is near impossible. It certainly makes it more difficult. Essentially, if you don't know what you have or where you have it, how can you execute properly. And one of the biggest factors in the deterioration of inventory accuracy is shrink, right? The loss of that product as it goes along the supply chain from a variety of reasons, we did a study -- this was several years ago and a couple of different retailers when they would do their annual inventory, and we would get the inventory accuracy set at that point, and then we would track the deterioration. And as few as 6 weeks after taking that annual inventory it had deteriorated back to its previous level, much of that due to shrink.

Joe, why don't you pick up on that and talk about the value that can be created just by having an accurate picture more often during the course of the year?

Yes, I think it's a good point, as Dr. Hardgrave just talked about that 6-week deterioration. Think about it from a loss prevention and Marshall, you touched on this about loss prevention and loss detection, for us and Macy's, we've been on the surety of RFID now for nearly 14 years. And we've gotten a heavy penetration of RFID inside of our stores. What that has really done for us is completely changed our visibility into loss inside of our stores. So the point of an annual inventory, when you think about an annual inventory, you have a onetime a year and you have to then determine where throughout the course of the year, you lost that product in the building. Now if it's seasonal goods, you can nail it down to 3, 4 months when you would have had that product inside of your building. But when you start to get RFID penetration on your product inside of your buildings and you start to introduce monthly cycle counts, you now take a 12-month window of great unknowns and compress that down to 30 days. And that's where we began probably back in 2014 and '15 in Macy's where we began to leverage RFID from a shrink visibility and to operate smarter because every 30 days, we got a report card on what we were missing inside of our stores, we could apply strategies towards those issues in the building and then 30 days later, measure whether or not those strategies were effective or not, either reintroduce new strategies or identify what is the new emerging vendor that is being stolen out of the building and adapt every 30 days. Without RFID, that was not going to be possible for us.

Now Read a few months ago, you stated that RFID gives retail loss prevention and asset protection and loss detection professionals, capabilities they have wanted for decades. So why don't we start getting a little bit into the who, what, when, where, and how as well, why don't we talk a little bit about that together?

Sure. I think a little bit about what Joe just talked about and the capabilities and the gaps that Bill mentioned. And that is, I think, on the left, of Bang where there's maybe a loss event whatever, for whatever reason, now you start having that information, that intelligence to make better decisions about what, where, how you are going to display and what specifically you're going to protect and how are you going to protect it. There's a lot of integration opportunities. Joe is going to talk a lot about that. So we see left of the problem. It's a huge strategic play, and it's an operational way to get out of the problem. I think during the event, again, I'm going to defer to Joe on this, but by integrating technologies, other sensors, think cameras and so on, you're going to have a much more complete picture not in the -- just in the aggregate, but in individual situations to understand by product, by area in the store, by that store if there's employee involvement, that type of thing as well. And then I think right of the event after the event as a forensic tool locating, identifying and positively identifying because you've got some provenance, right? You've got a license plate hey, this actually was never sold. This belongs here. That's not yours. And I think those are all game changers.

And for those who may be newer to RFID, we're talking about essentially a serialized barcode. So the combination of serialization and automated data capture unlocks these possibilities. So why don't we talk a little bit, Joe, about some of the ways that this has helped you in terms of these new capabilities. And this might be a good time to talk about smart access.

Yes. And I introduced it as kind of like compressing it to 30 days. What's interesting about RFID, just like really any other technology, as you unlock more data points, you ultimately get more questions. And now you get 30 days of recycled cycle counts in your store and you say, geez, what's happening in the 30 days? How could I get even smarter to that? And that's where we began introducing in 2016 smart exits in our stores, which is, in essence, just RFID readers at our entrances for both our customers and our employees in our retail stores and that unlocked for us a level of data that we had never thought was, a, either possible or b, our teams could consume and make actionable strategies based on the data there. So you go from 12 months to 30 days, to every single day, getting loss events and Read had mentioned about when you start to combine it with other technologies, you're not just getting an Excel file that says, here's all the serialized data that left you're building. You're getting video time stamped of every individual that took product out of your building without paying for it. And what that ultimately did for us is take us focused away from the low-hanging fruit in our stores. So looking for those individuals that are causing the biggest distortion and biggest loss events inside of our stores. And I can tell you, in the past 7, 8 years, it is definitively and in my 26 years of doing this, the biggest innovation change that we've had inside of Macy's is the ability to have RFID reads and to operate in a smarter environment in our stores and take the biases out of what our teams are doing inside of our buildings because we're leveraging the data to direct us on what we need to focus on day in and day out inside of the stores, ultimately to Dr. Hardgrave's comment about shrink. For anybody that has been listening to the media, there's been a lot of conversation around shrink. And this unknown of do retailers really know what is actually being lost out of their buildings. I would challenge and I'm probably not going to really do this, but I'm going to challenge if there's any media in the room to come see me afterwards because the amount of data that I can provide, I can tell you the amount of employees that are stealing out of my buildings. I can tell you how often customers are stealing out of my building, I can tell you the items they're taking out of the building. And then that unlocks for us the ability to take it outside the 4 walls and how we can leverage this term of organized retail crime, how we then unlock from that point, we continue to grow and learn what other use cases we can use from RFID. As we learned more and got more data, we got smarter. And again, we answered more questions but created more questions and then we continue to leverage the technology to get more answers.

Got it. In terms of packaging up cases for law enforcement, maybe, Read, you could comment a little bit about that.

Sure. And I think go back to what Joe was saying, and you could even amplify what exit they left, what time date stamp, all that sort of things. So now you've got this case, it's incredible. And then right with serial offenders, and there are a whole lot of them, that's a large percentage. What other stores has this person been taking from? Who else are they associated with and now with law enforcement, you get their attention, they can put together more complete case packets with much better evidence than they've ever had. And then again, with the prosecutors, that's so critical, right, Joe, to get their attention. Look, I can show you this time they victimized us, but also this, this and this and at this place and that place. And eventually, we'd like to pull together a retail data right to tell the story where that individual is hitting these other places as well.

That's great. Early in November, I had the privilege of attending an important event in Sanibel in Florida put on by the Loss Prevention Foundation. And the Attorney General of the State of Illinois was there, and it became very, very clear that in order for this to fully get on the radar of the political element that and prosecutors, there needs to be more data, there needs to be the ability to connect dots that in the past haven't been connectable. And it's very encouraging to see that great progress is being made on that front. It's because of things like this. Now Joe, I've heard you say before that because you've used exits or smart readers at the exits that employees must use when they exit the building and entered the building, you've been able to identify people that you never would have expected to be involved in any dishonest activity. Could you maybe expand on that a little?

Yes. I'd tell you I mentioned before about it kind of removes the biases in just how you operate asset protection, loss prevention inside of a retail environment. For us, from an internal perspective, our colleagues inside of the building and hopefully, we will have previously investigated those individuals, but there comes a point where they become trusted colleagues inside of your building and based on turnover, you end up focusing on that new hire. That individual you don't know that you haven't done surveillance on them. What was really interesting is when we started putting smart exists inside of our buildings, those individuals that had been with us 15, 20, 30 years, were starting to hit on our exits and there's an individual Ted McCaffrey in the room that has heard me say this before. Smart exists for us is like TSA. It is unbiased, every single person is going to walk through it. We're then just going to take the output of what reads through those exits, and it's going to tell us who we have to focus on inside of our buildings. And we started to realize that we have long service colleagues that we trusted, but were actually hitting us for merchandise out of the building, and there was even one colleague, cannot believe this is true, but it is, that had been with us for 62 years that hit off on our smart exits in our building, that was taking merchandise out of the building. I'd like to think they were not stealing for 62 years. But they were stealing from us, and they have been working for us for 62 years. And this is an unbiased system. So you take the data that outputs from it, you conduct your investigations and it was a real unlock for us from an internal perspective as well as we talk about all things from an organized retail crime, the professional shoplifters that are targeting retailers.

Yes. So if I've heard that right, in terms of removing bias, it's not just on the internal side, it even allows you to get more value out of your investment in security guards and personnel because you have a better idea of exactly who's doing the stealing, going out the front door as well.

Yes. The complexity for us, we're a retailer that has 5, 7, 10 entrances in any of our buildings. So when you've got merchandise on multiple floors and it's moving vertically, it's a great unknown without this type of technology to understand when it's leaving the building, how is it leaving? What exit are they taking it out of and it really starts to unlock where you believe your gut tells you if Polo merchandise is on the lower level that they're taking it out the lower level mall door, but now we know it is you based on this data, you start to unlock that they're actually moving vertically in the building, and they're taking it out the third floor mall door and the drive to that might be because we don't have guards at that door. That's not a door based on the type of product that's up there that isn't high-value, high-risk product, so we don't staff that door. But based on this, we can then shift our staffing of our teams not only times a day, day a week, but even the doors within the store based on the reads of the RFID tags.

So, it's interesting when determining whether or not to give your merchandise the benefit of smart labels, which is really giving your customers and your frontline employees as well the benefit of smart labels you need to look at the benefits from an enterprise view. Now some of that benefit comes from loss detection and loss prevention, but it also comes from other areas as well. And Bill, I'd like you to talk a little bit about the combination of use cases and sources of ROI that together make the case and how to make that case internally with leadership. And I know you, Joe, have a lot of expertise in that area, too. You've lived that -- you've locked that road. Bill, why don't we start with you?

Yes. It's interesting that even 20 years ago, we identified loss prevention as 1 of the 4 major use cases before RFID back then, although it's 1 of those that as a stand-alone use case, it's hard to make that case, although we've made great advances. It's really when you combine those use cases together, right? And you get that visibility from point of manufacturer all the way through to the consumer, right, where you really start to unlock that. And it's not just we talk about loss prevention, and we're getting there. But right now, we're really talking more about loss detection, right? But as we get smarter, we get more data, we really move toward loss prevention. But we also then have to think about the full use case there of also fraudulent returns. There was -- I think it was an article in the Wall Street recently about fraudulent returns, right? And especially for chain stores, right? They steal from one store and they return it to another store. That with RFID, right, you capture that when you've got full visibility through point of sale. So there's a lot of the use cases that are there. And I want to go back to the inventory piece for just a second to think about the importance, as Joe was talking about, of getting that regular inventory and whether it's once a month or once a week or once a day in some of these areas, one of the things that we see, I mean, it certainly varies by the product category, right? I mean if you have a SKU depth of 2, a loss of 1 thing makes a huge difference, right? If you've got a SKU depth of 24, loss of 1 may not make a big difference. And certainly, if there's substitutions, there's a lot of things that go into that. But one of the things that we saw early on that still happens today without adequate visibility is something that we call frozen out of stocks. Right? And it may be a term that some of you are familiar with, but it essentially is like this, if your reorder point is 3, right, and your system says, you have 5, but really, you only have 1, then you'll never sell enough to get below that reorder point. So you're out of stock and that SKU is frozen, right, because you'll sell 1 and it won't hit the reorder point. And so until there's some manual intervention or something building the system that says, hey, after so many days, go put eyes on this. But with regular inventory, we unlock that, right? And so that we are replenishing and -- ordering and replenishing the way we should.

Makes perfect sense. So there are really 2 types of retailers out there right now. Those who have RFID tagged product in their stores, really 3 types: 1A and 1B. 1A is have tag product in their store and are using those tags mainly for back-to-front replenishment and getting 4-wall inventory accuracy, but perhaps not using it for asset protection, then you have those who have tagged merchandise in their store because brands are tagging all of their production because other retailers have asked for tagged product, but that retailer hasn't. So they're sitting on a lot of tagged inventory, but aren't doing anything at all for loss detection or for back-to-front replenishment or replenishment of the store. So in terms of guidance, Joe, and in terms of guidance, Read, to companies like that, how to start capturing some of the goodness and some of the value? What suggestions might you have?

Yes. I'll kind of piggyback on Dr. Hardgrave talking about like loss prevention being one of the four. I think the lesson for us, as I described it to you about how we matured from cycle counts to these smart exits, it was a growth spectrum of learning like what use cases we can use from RFID. If I were to reflect back and be able to tell myself in 2013, what we know now, we would have hurdled much faster from an RFID standpoint because it's not solving 1 thing. It's how you start to solve 3, 4 different things inside of a retailer. My second point would be for retailers that have penetration of RFID that maybe they don't have the in-depth infrastructure, start with handhelds. It's a low-cost option to be able to start scanning, inside of your building to be able to just capture and understand what level of product is coming inside of your store that is RFID tagged, so turn it over to you, Read.

No. I think to add to that, we've talked about this before that getting way ahead, leaning out your inventory anyway, and I can member a retailer I worked for 30 years ago, huge spike. The loss prevention team was under the microscope, the Executive VP, the Head Merchant was all over my boss at the time, the loss -- the VP, let's say, Joe's counterpart back then, we did a deep dive. Basically, the head merchant, they had way over bought in those categories, and there was merchandise everywhere in trucks and trailers and places we had never even mapped on our supply chain to be honest with you, I think we see stock rooms are shrinking, fewer employees, less committed employees sometimes, associates. So again, knowing where everything is when you need it and just getting just enough in there like you're saying stocking it at rate of sale, and not stocking beyond that, RFID has got to help, and that's going to reduce losses right there. No other loss shrink or theft detection needs to even come into play yet. So I think that, from our standpoint, that's the biggest part of this.

I'll kind of tack on to that. What was like an aha moment for us as well was the ability to have smart exits gives us shrink visibility inside of our stores. But then we came full circle in how we took that shrink visibility in the data to then buy back into that product. So as I described before about doing a 30-day cycle count, let's say we take a cycle count on the first Monday of a month. And on Tuesday, the day after that cycle count, we have somebody come in and take 40, 50 outerwear coats out of our building and they trigger on our smart exits as they exit the building. We can now leverage that data. That's output from the smart exits to not only inform our asset protection teams on how to work smarter, what we can then buy back into that product because we don't have to wait 29, 30 days to take another cycle count, we already have the loss of that. And we can now buy back into that product. So you talk about that frozen out of stock. That really compresses that down to every single day and it's a handhold of we're leveraging the shrink visibility to get merchandise visibility and to get back in stock on the product for the customer that wants it...