Tuning in to the retail revolution

Radio frequency identification could revolutionise retailing, both in the warehouse and at the point of sale, but is unlikely to...

Radio frequency identification could revolutionise retailing, both in the warehouse and at the point of sale, but is unlikely to appear in your local supermarket overnight, writes Daniel Thomas

The idea of supermarkets stocking goods without barcodes seems an alien concept in this day and age, conjuring up a quaint image of an apron-wearing local shopkeeper picking out goods from behind a counter. However, as recently as the mid-1980s, the barcode - which was developed in 1973 - was languishing in the grocery industry with very little adoption.

It was only later in the decade that barcode use became more widespread, and for one reason - the backing of US supermarket chain Wal-Mart, the largest retailer in the world.

Retail industry watchers say, "When Wal-Mart sneezes, the industry catches a cold."

The company, which today has an annual turnover exceeding $50bn, mandated barcode use in 1984. Within three years the majority of its supplier base was in compliance. This benefited not only Wal-Mart but also the entire retail industry as firms cut costs and improved efficiency.

Fast forward to 2003, and, if industry experts are to be believed, the pattern is about to repeat itself with a technology which could potentially replace barcodes - radio frequency identification (RFID).

RFID uses microchips to transmit serial numbers to a reading device wirelessly, without the need for human intervention, allowing goods to be tracked electronically along the supply chain from warehouse to point of sale.

The technology, which promises to reduce theft-related losses, slash inventory levels, improve stock availability and cut checkout queues, has been around for many years, but the prohibitive cost of tags and lack of industry support has prevented widespread adoption.

However, last month RFID received a massive boost when Wal-Mart said it wanted its top 100 suppliers to be using RFID tags on cases and pallets destined for its stores by 2005.

"Some company had to make it happen, one with the mass and market influence to dictate and create a wave of momentum that would wash over the entire industry," says John Fontanella, analyst at AMR Research.

"You can count on one hand the number of retailers big enough to force a whole industry to adopt a new technology in a constrained amount of time. Wal-Mart is the biggest of them all."

Despite its much talked-about benefits, RFID is evolving too slowly by itself and needs the support of a market leader like Wal-Mart, he says. "As Wal-Mart suppliers buy more tags, prices will drop.

"An increased number of pilots will result in a stronger technology industry to support them. With risk minimised and prices brought into line, adoption will speed up and move beyond the Wal-Mart supplier base."

However, some analysts predict that Wal-Mart's 2005 deadline will cause problems for the firm's supply chain partners.

"Wal-Mart's timeframe in attempting to get such a system running in less than two years is very aggressive," says Jack Gold, analyst for infrastructure strategies at Meta Group. "Wal-Mart is shifting the implementation burden to its product suppliers and we believe that many suppliers do not have the necessary expertise to pull this off without experiencing major problems."

The lack of available RFID tags and the eventual disposal of tagged goods could prove problematic, says Gold.

"For Wal-Mart to meet its need, we estimate it will require one billion RFID chips per year, with many times that amount if other large retailers require RFID," he says.

"Furthermore, the flexible circuits with antennas built in must also be manufactured. These cause disposal problems, such as putting copper into landfills or recycling."

Wal-Mart itself appeared to admit its RFID plans were over-optimistic last month, when it scrapped a test of "smartshelf" technology and RFID-tagged Gillette razor blades which it had pencilled in for a store in Boston.

Although much was made of the move, Wal-Mart insisted it was still fully committed to RFID, but said that it now wanted to focus on the technology in the warehouse and supply chain.

Although Wal-Mart appears to take centre stage in the RFID arena, European retailers are, in fact, leading the way with in-store trials. In the UK, Tesco has launched two high-profile trials of the technology, tracking razor blades and DVDs, and others, such as Marks & Spencer and Woolworths have also tested electronic tagging in some form.

One of the most widespread uses of RFID to date can be seen at German retail group Metro's showcase "future store" in Berlin, which features tags on various products, in shopping baskets and on smartshelves.

Although retailers are progressing with their RFID trials, they may neglect to consider the overall cost of putting an RFID-based supply chain infrastructure in place, warns AMR analyst Pete Abell.

"While all eyes have been trained on the cost of tags themselves, the significant investment required to build up the infrastructure has been largely ignored," he says.

"This will inevitably come under closer scrutiny as organisations evaluate the total cost of implementing RFID, weighing it against expected benefits."

The potential impact on consumer privacy could also hamper the progress of RFID, after fears were raised that the technology could allow companies to obtain information on customers and track their movements without their knowledge.

Although the idea that Wal-Mart or Tesco would want to track shoppers as they drive home from the store seems like something out of a John le Carr' novel, some retailers have taken these fears seriously.

In April, fashion retailer Benetton postponed plans to roll out RFID tags in one of its clothing ranges following protests from privacy groups such as Caspian (Consumers Against Supermarket Privacy Invasion and Numbering).

In response to this, Royal Philips Electronics, which was due to supply the technology for Benetton, announced it was implementing a feature into its RFID tags that would disable them at the point of sale.

It also called on standards body Auto-ID Center to make a similar feature part of the Electronic Product Code (EPC) specification, the key plank of the international RFID standard, which is due to be ratified by September.

However, Auto-ID says the "kill" feature has been in its specifications since the beginning. "It is one of the things that makes our EPC system different, and is also one of the benefits of developing technology in a user-led environment. Our user sponsors have always said they needed it," says Kevin Ashton, executive director at Auto-ID Center.

"We have always been surprised that other technologies have not implemented something similar."

Ashton says most of the fears are unfounded, but stresses that privacy is an issue Auto-ID and its members are focused on.

"It is important to take people's fears seriously, apart from how founded or unfounded they may be," he adds. "Using RFID to track people in any practical way is difficult, but that does not mean we should not try to make it impossible."

One way of addressing privacy fears is to outline uses of RFID data and provide consumers with opt-in and opt-out choices, says Christine Spivey Overby, an analyst at Forrester Research. "By doing so, firms will avoid missteps like Benetton's," she adds.

Companies could also turn to technology to address these fears, says security specialist RSA Labs, which filed patents on two privacy-boosting RFID applications in June.

Ari Juels, principal research analyst at RSA, says a "blocker" tag, which would disable the ability of readers to read tags once goods have been paid for, and "pseudonym throttling", which means tags would only be readable every few seconds, would boost consumer confidence in RFID.

"Technology is required to ensure consumer privacy is not eroded by RFID because legislation and policy reform always lags behind technological advancement," he says.

Despite these privacy fears and issues over tag costs and IT infrastructure upgrades, the progress of RFID, now that Wal-Mart has caught the bug, appears relentless - and it will not be restricted to retail.

"The Wal-Mart RFID influence will extend far beyond the retail/consumer packaged goods market," Fontanella says.

"Companies whose products or services will never touch a Wal-Mart, or any other retailer's, shelf will benefit from the lower costs and more stable technologies that will come from its mandate.

"The retailer leaves no question of the direction it is going and it is this non-negotiable stance that will promote adoption throughout all industries."

Twenty years after the barcode transformed the retail industry, companies in the sector and others across the board are preparing for another technology revolution, with IT directors once again thrust into the limelight.

In a few years' time, shoppers may be looking back with fondness at a time when shelves were dumb and a checkout assistant had to scan every item manually.

Where RFID has been rolled out

Food and clothing:  In April this year, Marks & Spencer announced the first large-scale use of RFID in-store in the UK. The retailer, which last year successfully implemented RFID tags on 3.5 million product delivery trays in its food supply chain, will begin tagging individual clothing items this autumn, in conjunction with RFID technology specialist Intellident. 

M&S will be the first UK company to use ultra high-frequency tags, which offer faster data transfer feeds and longer read ranges than high-frequency tags. This makes them suitable for applications in which many fast-moving individual items need to be read, even if they are in close proximity to each other, such as in rails of hanging garments or stacked shirts.   

DVDs and razor blades: In June, Tesco extended its trial of RFID tags, using the technology on DVDs at a Tesco Extra store in Sandhurst. The move followed the supermarket giant's initial trial of RFID tags on Gillette Mach 3 razor blades at its Cambridge store, which started in January. 

If the latest trial proves successful, the tags could feature on a wide range of food and non-food products in the future, says Colin Cobain, IT director at Tesco. 

"In time we will see chips on food products, so we will know when the products on-shelf are approaching their sell-by dates," he says. "It will make identifying products a lot easier and allow our staff to spend more time with customers."   

Not just retailers:  During the Second World War, the British military used a primitive form of RFID, with tags the size of suitcases, on its fighter planes, which allowed the allied forces on the ground to identify whether an aircraft was friend or foe. 

The technology was used again by the US Department of Defense during the recent conflicts in Iraq and Afghanistan to track all assets moving in and out of the war zones electronically.

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