Maybe it just sounds too good to be true—something like those e-mails claiming Microsoft will pay you $100 just for forwarding the message to your network of friends. Despite well-documented gains by Wal-Mart and other early adopters of RFID technology, U.S. retailers have been slow to get into the game. With the exception of a few giant chains like Target, Wal-Mart and Best Buy, the byword in the retail world has been watch and wait.
"Outside of those few companies, there isn't a lot of movement," says David Hogan, chief information officer for the National Retail Federation. Hogan says he hasn't seen any signs that the rush will be getting under way anytime soon. "The word we keep hearing is '[We'll] take a look at it in 2010 and see if the price is down and the reliability is up.'"
Retailers themselves offer a variety of reasons for their hesitation. Some feel they have little to gain from RFID because their operations are already running at maximum efficiency. Others say they're worried about getting caught in the crossfire in the battle over privacy. But Hogan thinks it's more a matter of simple economics. Many retailers are reluctant to invest in RFID, he says, because they're dubious about the prospects for payback.
Billions in benefits
A new study may chase away those doubts. A report released late last year suggests that RFID's economic benefits may be far higher than previously estimated. Even at today's relatively low adoption levels (9 percent of retail sales at the pallet level and 2 percent of sales at the item level), the study says, retailers currently derive an astonishing $12.05 billion in benefits from RFID applications.
The gains, according to the researchers, are coming from reductions in labor costs, decreases in "shrinkage" from theft, and reductions in inventory write-offs as well as better product availability and faster time to market. And the savings promise to be ongoing. If, as predicted, adoption rates reach 45 percent of sales at the pallet level and 20 percent at the item level, RFID could be worth a whopping $68.55 billion in benefits to retailers by 2011.
Even the RFID chip-maker that commissioned the study found the results to be an eye-opener. "We were quite [surprised] by the sheer [size of the] returns the study shows," says Jan-Willem Reynaerts, general manager for the RFID market sector team at NXP Semiconductors, which was spun off from Philips last year. The company, which is based in Eindhoven, the Netherlands, commissioned the study, which was conducted by researchers from the University of Texas at Austin.
The study also calls into question the claim that retailers aren't seeing much of a payback on their RFID investments. Anitesh Barua, one of the study's authors, puts the cumulative retail sector spending on RFID technologies (from 2003 through 2006) at $2.37 billion. Based on that, the $12.05 billion payback figure represents a nearly fivefold aggregate return.
No more black bananas?
There's more to the RFID story than dazzling returns, analysts say. RFID also shows great promise for solving some long-standing business problems. "RFID is a very significant business opportunity that is there to be understood and embraced, and that's what separates the companies that get it from those that don't," says Marshall Kay, North American practice leader for RFID at Kurt Salmon Associates. "Wal-Mart, Best Buy and [German retailer] Metro clearly get it and understand exactly what RFID has the ability to do. They are investing time and money to determine how best it can help them."
One way in which RFID may help retailers is by cutting down on waste and spoilage. That would be an economic boon to both the grocery and the pharmaceutical sectors. Suppliers of perishable goods—from bananas to oncology drugs—typically experience $35 billion worth of waste each year, according to the RFID Research Center at the University of Arkansas.
Much of the damage occurs while products are in transit. "Loss and damage of perishable goods during storage and transportation is a substantial global issue," says Doug Standley, co-leader of Deloitte Consulting's wireless and sensor solutions group, "with some industry sources estimating that losses of up to 33 percent on perishable freight are common. The good news is that emerging technologies are now ready to address this issue."
RFID is one of those emerging technologies. In tests recently conducted by Deloitte and the RFID Research Center in collaboration with Chiquita Brands, researchers successfully used a combination of wireless, sensor, RFID and Internet technologies to monitor temperatures of perishables while in transit. Among other findings, the tests revealed that temperatures varied widely within a single refrigerated trailer, fluctuating as much as 35 percent from pallet to pallet. By using RFID tags with temperature sensors, the researchers were able to collect a temperature history for each pallet. That type of monitoring system would make it possible for retailers to identify which pallets have been exposed to the highest temperatures (and thus have the shortest expected shelf life), so they could unload and use them first.
"The preliminary data from the experiment are already beginning to provide insight into a real-world environment that until now had been prohibitively expensive to track," says Bill Hardgrave, founder and director of the RFID Research Center. "Overall, this project—even at this early stage—is rapidly bringing into focus the vision of a truly intelligent cold chain."
Let the revolution begin!
The cold chain benefits notwithstanding, most analysts say RFID's full potential has yet to be unleashed. That won't happen until item-level tagging becomes common practice among retailers. Though that day may still be some years off, say Barua and Reynaerts, it will irrevocably change the industry when it arrives. They believe the combined benefits of item-level tagging to retailers could exceed $150 billion upon full deployment.
In the meantime, Hardgrave says interest in item-level tagging is picking up. Some of the retailers that are working with the RFID Research Center have begun moving down that path, he reports, though most of them have barred the center from revealing their identities for competitive reasons.
One retailer known to be pushing ahead with item-level tagging is the UK-based retail chain Marks & Spencer. M&S, whose item-level tagging pilots date back to 2002, plans to extend its apparel-tagging program to 120 stores this spring, concentrating initially on lines of clothing that come in a wide variety of sizes—like men's suits and women's jackets and bras. M&S hopes the tags—which are Gen 2 HF tags applied at the point of manufacture—will improve inventory visibility and help reduce stock-outs.
Japanese retailer Mitsukoshi is said to be expanding its item-level tagging program as well. According to published reports, the retailer credits item-level RFID tags with helping boost sales by 13 percent in the women's shoe department at its flagship store in Tokyo. Mitsukoshi is currently using the technology at seven stores across Japan and may introduce it at its U.S. stores in Orlando, Fla., and Honolulu later this year.
Does that mean the RFID revolution is finally under way? Bill Colleran, CEO of tag and reader maker Impinj, thinks it is. "In a few short years, every object in our world will have an electronically accessible number on it," Colleran told attendees at an educational forum hosted by AIM Global in November. "In the near future, all manufacturers and retailers worldwide will adopt RFID, and it will change our lives in profound ways."