Tagged for Growth

(Business 2.0 Magazine) -- While U.S. retailers like Wal-Mart (Charts) are still struggling to put radio-frequency ID tags on boxes and pallets so they can track merchandise in bulk, Dutch bookseller Selexyz may be the first merchant to tag every single item on its shelves with the wireless technology.

That means no more taking inventory by hand, no more lost books, and fewer returns to publishers. Selexyz, the Netherlands's largest book chain, has been testing an RFID inventory-management system at an outlet in the town of Almere. The store's sales have been 25 percent higher than those of the average store since the system was installed in April, and all 42 Selexyz outlets should have RFID tracking in place by mid-2008.

Installing the system will cost about $120,000 per store, but Selexyz chief information officer Jan Vink expects the technology to increase the chain's overall profit by as much as 40 percent. That got Barnes & Noble's (Charts) attention: The U.S. book giant plans to dispatch executives to the Netherlands to investigate the system.

Here's how it works.

1. Add the Tags Selexyz's distributor places an RFID tag, usually the size of a strip of tape, on every book being shipped to the store. The tag also contains a bar code and can be used as an antitheft device. Each tag costs about 25 cents.

2. Scan New Arrivals At the store each box of books goes through an RFID scanning tunnel, which compares the contents with what was ordered and enters every book into the inventory system. "In five seconds, we check each box," Vink says. Before, only spot checks of boxes were possible and required hand-scanning the bar codes.

3. Update the Inventory Three times a week, employees roll an RFID scanning cart through the store to check the inventory. They wave a wand over each shelf, and the books and their locations are noted in the system. It takes two employees two and a half hours to scan 38,000 books. In Selexyz's other stores, a complete inventory is done only once a year and requires the stores to be shut down for a day, costing a total of about $800,000 in labor expenses and lost sales.

4. Give Customers Access Three kiosks let shoppers pinpoint within seconds the exact location of any of the store's books. Customers can search for books using the same inventory system the employees rely on (powered by Progress Software). The kiosks tell shoppers not only whether a book is in stock but also what bookcase it's on. If a book is not in stock, the shopper can order it online at the kiosk for either home or store delivery the next day. The kiosk also suggests other books customers might want, based on their searches. About half the people who use the kiosks end up buying something, according to Vink.

5. Close the Loop At checkout, scanners remove books from inventory and disable the RFID tags. The pilot store's annualized sales should hit $2.5 million this year, 25 percent more than the average store's.