By Brian Kilcourse, Managing Partner
2/19/2008
In 2005, analyst reports predicted that the retail-specific market for RFID would grow to over $4 billion in 2011. This was during the height of the “mandate” period, when such companies as Wal-Mart, P&G, and Target were very vocal in their support of new technologies. Now, half-way between 2005 and 2011, there’s been a noticeable “quieting” of the buzz surrounding RFID, and retailers, never a vertical to be known for getting on and staying on the “bleeding edge” of technology, have been focusing on other things, notably work force management, multi-channel retailing, and localization of merchandise plans. But that doesn’t mean that RFID has been debunked (although it DOES mean that “mandates” don’t work as well as competitive market factors in driving adoption of any technology). What instead has happened is that companies have quietly continued to pursue “closed loop” applications that address specific economies.
Asset management is an area where RFID has gained acceptance, particularly as it relates to tagged trailers, containers, and pallets, helping retailers and their suppliers perform such functions as load routing/rerouting and dock scheduling, and yard management.
Meanwhile, although item-level tagging doesn’t receive the press notice that it has seen in the past, companies continue to experiment and expand. For example, Karstadt, the German department store chain, recently announced that it is launching an item-level RFID pilot in its Düsseldorf store. The company hopes to achieve a quick ROI through improved inventory accuracy, improved markdown management, and shipping accuracy. Karstadt had been slow to adopt RFID, but now feels that the available technologies are more reliable and cost-effective than earlier available options.
In the U.S., Texas-based Dillard’s recently conducted a pilot involving one DC and one store, where cartons and items for one category of merchandise (men’s denims) were tagged. The retailer compares scanned information at the DC with ASN’s to ensure shipping accuracy. The company is also testing the efficacy of the technology for DC-to-store shipping as well as selling floor cycle counts. The company plans to expend its pilot to include all private label men’s denims, shoes and handbags, and yard management.
Although technologies needed to support a cost-effective RFID adoption have improved greatly since 2005, business issues continue to nag. For example, retailers and their manufacturing partners continue to squabble over who pays for tagging merchandise at the item level. Karstadt has avoided this issue for the time being, by having its logistics partner tag merchandise from six vendors at it hub. Dillard’s has focused its attention on private label merchandise, sidestepping contentious discussions with major brand manufacturers. In another recent announcement, Handleman, a music distribution company that manages the pre-recorded music category for over 4000 stores in the U.S., U.K., and Canada, said that it would employ RFID to enable better end-to-end merchandise management for its customers, effectively resolving the issue by providing a turnkey solution.
So, how big is the RFID technology market in retail likely to be by 2011? Few if any analysts are now willing to project a number. But before throwing up one’s hands in despair, it’s important to look back at RFID’s predecessor technology: the lowly barcode. The barcode was commercialized in 1966, when The National Association of Food Chains (NAFC) put out a call to equipment manufacturers for systems that would speed the checkout process. In 1967, Kroger was the first retailer to install a scanning system in a store. The UPC standard for barcodes was set in 1973, and in 1974 the first product with a bar code was scanned at a check-out counter, at a Marsh’s Supermarket (it was a pack of Wrigley's Juicy Fruit chewing gum). Only 15,000 suppliers were using barcodes by 1984, although in three years that number skyrocketed to 75,000 (because of a Wal-Mart mandate!) Even then, UPC’s didn’t become pervasive across all of retail until the mid-1990’s. Certainly we are not suggesting a 30 year adoption cycle, but 15 years (starting with the establishment of the Auto-ID Center in 1999) isn’t out of line.
RSR will conduct a new survey on RFID adoption in the retail ecosystem later this year. If you’d like your point-of-view to be included in the study, we invite you to post your comments on our blog!
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