Retailers see RFID ahead

They say it's only a matter of time before adoption

Retail executives are now saying "when," not "if," as they consider the use of radio frequency identification tags to track goods through their supply chains and ultimately in their stores.

That's a marked change from a year ago, when many expressed guarded sentiments about RFID's prospects and demonstrated far less knowledge about how the technology works. But as the new year begins, the executives are expressing great interest now that Wal-Mart Stores Inc. has directed its top 100 suppliers to put RFID tags on pallets and cases they ship to the retailer's three Texas distribution centers by next January.

"I'm sure Wal-Mart will help the industry by basically driving the requirement and driving the price points to make it more affordable," said Alan Lacy, CEO of Sears, Roebuck and Co. He said Sears will adopt RFID "as it makes economic sense," since it expects to see benefits in the areas of inventory tracking and theft protection.

Creating Momentum

"For every new technology, there tends to be somebody who creates the momentum, whether it be bar codes or EDI," said Phillip Maxwell, CIO at The Neiman Marcus Group Inc. in Dallas. "I think that's what happened here."

Maxwell said the high value and uniqueness of his company's products will make them good candidates for RFID tags. But he expects it to be at least three years before Neiman Marcus uses RFID, because the company will require item-level tags. The first phase of RFID will be at the pallet and case levels, he said.

But several retailers said they're anxious to get to item-level tagging. Brian Devine, CEO of Petco Animal Supplies Inc. in San Diego, said he can envision the day when a customer will be able to simply push a shopping cart through an RFID-enabled arch and swipe a credit card to pay for his purchases, with no individual scanning necessary. He said another arch could disengage the tags for privacy-conscious customers.

But while Devine can foresee pallet-level tagging within the next three years, he expects that it will take much longer for item-level tagging because of the costs, not only of the tags but also of the infrastructure that goes with it.

Some retail analysts predicted that it could take more than a decade for item-level tagging to gain wide usage among mass retailers. Christine Overby, an analyst at Forrester Research Inc. in Cambridge, Mass., estimated that it will take five to seven years for the rollout of RFID in the supply chain and two decades for item-level tagging on the consumer end because of privacy implications and "sheer costs."

Early adopters are also cautious in their predictions for item-level tagging. Wal-Mart isn't even doing it yet. Metro Group, a German retailer, is piloting item-level tagging, but CEO Hans-Joachim Körber said it will take 10 to 15 years to gain universal acceptance (see story).

Colin Cobain, IT director at U.K.-based retailer Tesco PLC, said his company's pilot with Gillette razor blades showed that the technology works, but the cost of the tags and readers was too high to bring a return. Tesco is currently negotiating with its reader and application provider to finalize a business case for tagging DVDs, but Cobain is cautious.

Happy to Wait

"I don't want to be the guy who's actually going first and making it a real cheap case to anybody who follows," he said.

That attitude is shared by many other retailers, which are happy to benefit from the lessons learned by early adopters such as Wal-Mart.

"I don't ever want to be a leader on things like that because there's no advantage—but you can be a quick copier," said Allen Questrom, CEO of J.C. Penney Co. in Plano, Texas. "Why pay a lot of money when things are going to change, and you've got to be able to adapt to the changes?"

Questrom said he was the "last person" to move to Internet-based retailing because he couldn't figure out how to make money on it. He said his site now makes money.

Bruce Nelson, CEO of Office Depot Inc. in Delray Beach, Fla., predicted that adoption will vary by industry, and he's content to "wait and see how it unfolds." Nelson said he has business, IT and logistics staffers studying RFID, and he expects that the company will try it within two to five years because of the "enormous potential payoff."

But Nelson has concerns. He cited the risk of adopting technology that has yet to be standardized as well as the expense of the tags, readers and systems integration. He added that it won't make economic sense to tag small-ticket items like pencils, for instance, and he fears that if some products carry tags and others don't, his company could need two systems to handle the data.

Last year, the cost of the RFID tags—which currently ranges from about 25 to 50 cents each—appeared to be the major concern among retailers and suppliers. Now their concerns have become broader.

Sears CIO Gary Kelly said the cost of the readers and middleware that will be needed to take full advantage of RFID, not merely the cost of the tags, is driving the economics. "You really have to have pervasive read capability wherever you apply this," he said.


Barriers to RFID

Too expensive 61%

Suppliers don't use it 52%

Difficult to integrate 31%

Consumers' privacy concerns 30%

Too complicated 23%

Multiple responses allowed.

Source: Poll of 57 retail IT executives by BearingPoint Inc. and the National Retail Federation, 2004

Copyright © 2004 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon