tag sales to approach 2 billion this year

More than 1 billion RFID tags were sold worldwide in 2006, according to research firm IDTechEx. That might sound like a lot, but it's left some analysts disappointed. Their original projections had called for much higher sales volumes.

So what went wrong? Part of the explanation lies in slower- than-expected growth in sales of tags used to identify cases and pallets during shipping. Only 200 million RFID tags were sold for use in case- and pallet-tagging applications last year—about one-third of the original target of 600 million.

Despite mandates by retailers in the United States, consumer goods companies have been slow to expand their use of RFID beyond the minimum required to comply with those mandates.Many are still struggling to figure out how to capitalize on their RFID investments and seem disinclined to sink more money into the technology. IDTechEx estimates that Wal-Mart's mandated suppliers purchased just a few hundred tags apiece on average last year.

That may be about to change. IDTechEx predicts that sales of RFID tags will see significant growth in 2007, reaching 1.71 billion by the end of the year. The research firm estimates that about 420 million of those tags will be sold for use in case- and pallet-tagging applications worldwide— more than double the number sold in 2006. Looking further out, the company says it expects to see sales of tags used for case and pallet tagging skyrocket sometime next year, reaching 1 billion tags per year by 2009. Even so, RFID tags won't be ubiquitous anytime soon. The day when tags are attached to all of the estimated 35 billion pallets and cases shipped worldwide still looks to be a decade off.

Michael Liard, an RFID market analyst with ABI Research, says that RFID solutions providers and integrators will be a driving force in the exploding market for tags as well as other products used in RFID-enabled applications. As an example, Liard points to Xterprise Inc.'s recent order for 4.5 million RFID tags to support its solution deployment for iGPS, which manages the largest pool of RFID-enabled reusable plastic shipping pallets in North America.

"There currently is a major lack of recognition of the important role played by the solutions providers," says Liard. "However, that will change as more market demand is attributed to the efforts of solution providers who are market makers."

With the order for 4.5 million tags, Xterprise CEO Dean Frew estimates that his firm's projected annualized RFID tag shipments will be over 10 million this year. The recent order is being filled by Alien,Avery-Dennison and Zebra. Raghu Das, founder of IDTechEx, expects that item-level tagging will continue to gather steam this year as retail and pharmaceutical customers adopt the technology. Pfizer itself used about 5 million tags last year to tag shipments of Viagra and could easily double that amount in 2007, when it starts tagging cases and pallets of over-the- counter pain reliever Celebrex. The company expects the first RFID-tagged cases and pallets of Celebrex to roll off the line by the fourth quarter of this year. Tagged product could work its way to wholesalers and pharmacies by the end of the year or early in 2008.

On the retail side, U.K.-based retailer Marks & Spencer is on schedule to expand its item-level RFID tagging effort from 42 stores to over 100 stores this spring. The retailer's goal is to eventually tag all 350 million items of apparel it sells each year.