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RFID: Not ready for retail primetime

The chips are slowly starting to track inventory and stock shelves, but the question on many minds is when will they make their mark in the front end of the store?

Like kids in December, many retailers are excited as radio frequency identification (RFID) concepts move closer toward reality. But experts at some of the top technology firms warn that the opportunity to create customer experiences in the "store of the future" is still a ways off.

RFID's immediate focus is to improve the back-end supply chain. Companies use RFID systems behind the scenes to embed tags on products to track inventory, maintain up-to-date business systems and stock shelves. At the front of the store, however, the story is different. Customer RFID initiatives live only in the dreams of most retailers. They know they need it, but right now the benefits aren't worth the investment.

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The upside to shopping with RFID technology includes better availability of stock, fresher products, less waiting to checkout and easier ways to return unwanted goods. Individuals can save their product and transaction preferences, so companies can track and take action based on more information than ever before. Companies can leverage this to take customization to the next level, building deep, insightful customer relationships.

However, the lack of business cases, paired with weighty technology and infrastructure costs, deter retailers from making these concepts reality. For instance, while the tags themselves may go down in price, RFID readers can average $2,000 each, and ROI hasn't yet been proven to justify the costs.

In order for it to have an impact at the retail level, prices on the systems need to drop. Douglas Bourque, director of sales of RFID Systems at Texas Instruments, insists that the market will drive technology costs down. Embedded tags, which now sell for about 30 cents per product, should drop to the mid-teens by 2005, and eventually could fall as low as 5 cents. Lower prices will open up the technology to the masses. "It's going to go from niche to mainstream," he says. Helping push adoption is a mandate from uber-retailer Wal-Mart. The initiative mandates its top 100 suppliers to equip all products in their supply chains with RFID tags by January 2005.

Vijay Sarathy, product line manager at Sun Microsystems, also notes that there is rampant confusion over how to install and manage customer-based RFID. Advanced technology and integration know-how are needed to successfully funnel the millions of bytes of customer data collected. "There's managing data, security, provisioning data -- making sure the right data syncs to the back-end system -- no one understands it," he says. "Retailers have to ask themselves, 'what is it that Wal-Mart is doing that I can leverage, and what is Wal-Mart not doing that I can leverage?'"

But optimists say that retail is only a few short years away from widespread adoption. John Thorn, general manager, supply chain and brand solutions group at RFID technology provider Checkpoint, predicts that Wal-Mart's back-end initiative will eventually drive RFID in the front end, which can increase same-store sales by up to 5% per year. "Better knowledge will transform the customers' shopping experiences, as well as improve inventory, increase product choices and create faster checkouts," he says.

Prada, the Gap and Spanish retailer Zara are among a handful of firms that have already deployed RFID initiatives. At Prada, for instance, sales associates scan RFID tags with handheld readers, which bring up product information, such as material, designer and manufacturer. The dressing rooms are also equipped with RFID readers, which depict product information about the clothing inside the rooms onto plasma screens.

Both SAP and Microsoft also foresee the consumer benefits of RFID. Last week both debuted pilot RFID solutions at the National Retail Federation (NRF) trade show. Ian Sands, director of Microsoft's industry innovations group, says that the company's Smarter Retailing program is designed to simplify the process for traditional retailers who don't use real-time data by leveraging mobile handheld devices to deliver data. "Eventually, the entire [retail] industry will move toward RFID," he predicts.

Copyright © 2004 Carlson Marketing Group, Inc. All rights reserved. Peppers & Rogers Group is a Carlson Marketing Group Company.

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