Retail tech startup Radar achieves unicorn status with $170 million funding round

Radar, a startup backed by American Eagle CEO Jay Schottenstein that helps retailers manage in-store inventory and cut back on theft and lost merchandise, reached unicorn status with its latest funding round, CNBC has learned.

The company, founded in 2013 by Spencer Hewett, raised $170 million at a valuation of over $1 billion in its series B funding round, which was co-led by Gideon Strategic Partners and Nimble Partners with participation from Align Ventures.

The company also counts Schottenstein among its investors. He said American Eagle was the first retailer to implement Radar's technology across its stores.

Through Radar, "American Eagle has unlocked greater inventory visibility, empowered our associates and sharpened our insights," said Schottenstein. "With inventory digitized in real-time, we have enabled our creative, operations and technology teams to place their focus on creating seamless, customer-first experiences that define the American Eagle brand."

Radar also works with Gap 's Old Navy and other major retailers, covering more than 1,400 stores.

When Hewett started the company with a boost from venture capitalist Peter Thiel's fellowship for young entrepreneurs, his goal was to create a better way to do instant checkout, but the strategy evolved to inventory management. Using hardware mounted to the ceilings of brick-and-mortar stores, Radar's technology can read any radio-frequency identification, or RFID, tag with 99% accuracy, the company said.

The tech addresses one of the most challenging aspects of running a retail business: inventory management. Between figuring out how much product to make, deciding where to send it and then keeping track of it once it arrives, retailers face a persistent challenge in overseeing their inventory. Errors can lead to lost sales and crush profit margins.

Radar primarily functions at the store level. It enables in-store employees to quickly hunt down an item a customer wants, addressing a pain point among shoppers who come to a store to buy a product listed as available online only to find it's actually out of stock.

"If a customer asks them, 'I want this in a different size' they can immediately see where in the store it is, no matter where it's been moved, and get it for the customer," Hewett told CNBC in an interview. "It gives them certainty that they can actually help the customer without them, like, saying we might have it in the back and disappear for like 15 minutes and then come back and be like, 'Okay, actually the inventory system said we had it, but we don't have it. I can't find it.'"

As a result, some of Radar's retail clients who offer a buy online and pick up in store option have seen order cancellation rates go from 25% to 3%, said Hewett.

The tech also helps managers to keep a better eye on deliveries and more easily identify shrink, or inventory loss from theft, error or damage. Shrink sometimes comes from would-be customers stealing merchandise, but it's murkier than that in many cases. It also frequently results from employees across the supply chain taking items or from administrative error.

For example, if a store expects a shipment of 100 T-shirts but receives 80, either because of theft at a distribution center or a packing error, it can be hard for a store manager to identify it, leading to out-of-stocks and lost sales.

"You don't have the labor hours to go and count every box that gets shipped, so you have to accept what they say is there and assume it's true," said Hewett. "With Radar, like, you actually have a real time check to make sure that it is true, and then flag it immediately if it's not."

The company declined to share overall customer data showing the effectiveness of the tech, but Hewett said one of his clients saw a 60% reduction in shrink after launching Radar at one of its stores.

When measuring shrink, companies tend to look at it on a net basis, factoring in both overages and shortages. One company may have a 15% shortage and a 15% overage, reflecting a net shrink of 0%, but that would also mean inventory was off by 30% for the customer, Hewett said.

"Sizes and colors matter, like, if you don't have my size, I'm not going to buy it, therefore, that's a lost sale, and it shows up in your revenue and margin," Hewett said. "We effectively eliminate that issue to make sure you're always in stock in the sizes and colors and products that you want to have."