Smart tags: Smart move?How and when RFID will change retailWhat is RFID? Depending on whom you ask, it’s either the next revolution
in retail or the next form of big-brotherly intrusion into consumers’
privacy.
RFID received scant attention until the fall of 2003.
That’s when the world’s largest and most closely watched retailer,
Wal-Mart, decreed that by January 2005, its top 100 suppliers would be
ready to use RFID. These suppliers were expected to have their implementation
plans ready by this past January. According to Internet Retailer, the number of suppliers
planning to comply with Wal-Mart’s mandate has risen to 128. That
means at least 28 Wal-Mart suppliers not mandated to get RFID working
are choosing to do so on their own. How will the Wal-Mart mandate affect the rush to RFID?
Ken Boyer, an associate professor of supply-chain management at the Broad
College of Business at Michigan State University, observed: “When
a big company like Wal-Mart tries a technology, it lights the fire under
everyone else to get on board.” “Everybody will be watching Wal-Mart,” Boyer
continued. “Wal-Mart and its suppliers will hit a lot of bumps in
the road—there are a lot of steps between how it should work and
how it works now.” Still, Boyer thinks the transition to RFID will occur
faster than the transition to barcodes a generation ago. He estimates
that RFID will be in use by medium-sized retailers in about five years. Dedric Carter, director of technology innovation at American
Management Systems, predicts RFID readers will have replaced 30 percent
of traditional barcode readers by 2006. Whether RFID will trickle down further to smaller retailers
depends on several things. Cost is important, but the fundamental struggle
may be between front-end and back-end applications for the technology. Just the facts In the retail context, the technology is sometimes called
“smart tags.” A “smart tag” containing a computer
chip and a miniature antenna is affixed to each item to be tracked. The
tag stores information, much like a barcode, but can hold vastly more
information than a UPC barcode. As RFID tags pass by readers located at specific points
in the supply chain (dock doors, warehouse doors, checkout lines), they
transmit their data, and a network of readers and software can create
a history of where they’ve been, what they are and where they are
bound, as well as expiration dates and other useful data. Further, unlike barcodes, readers and tags do not need
line-of-sight contact, and hundreds of tags, potentially, can be read
in an instant, all without anyone actively scanning them. Each tag is
designed to work within a highly specific range, for instance from 2 to
12 inches or from 1 to 3 feet (up to 20 feet). Front to back “Smart shelves” installed with readers could
call out to employees’ PDAs to be restocked. Smart carts equipped
with “personal shopping assistants” could give shoppers a running
total of the items in their cart and allow them to breeze through a self-checkout
lane. Customers could make returns with no receipt—the tag would
store all necessary information.
Information kiosks allow shoppers to watch a preview of
a DVD or print a recipe for that unique sauce they are considering. Dressing
rooms will show shoppers what other colors or sizes are available for
that blouse (a service already available at New York’s elite Prada
Epicenter store, where item-level smart tags are proving popular with
its clientele). However, consumer watchdogs argue there’s a high
price for that kind of fun. When privacy groups became aware of RFID,
they were immediately concerned about possible abuses—primarily,
that tags would remain active after purchase, allowing intrusive and extensive
data collection on consumers. The most vocal protesters are Consumers Against Supermarket
Invasion and Numbering (CASPIAN), which has publicized its serious concerns
about consumer privacy and has drawn other privacy-oriented groups into
the debate. The protestors’ impact has already been felt in Europe.
In early 2003, apparel retailer Benetton was planning what was billed
as “the largest-yet implementation of ‘smart tag’ tracking
technology.” But Benetton quickly reversed its decision to include
smart tags in a line of apparel after a barrage of concern from privacy
advocates. After such incidents, RFID technology suppliers, manufacturers
and retailers switched course dramatically toward the back-end uses of
RFID. Now the focus is on tagging pallets and cases to allow a vastly
streamlined and “transparent” supply chain, from manufacturer
to distributor to the back of the store. A Wal-Mart spokeswoman, describing the benefits of RFID,
focused on back-end efficiencies: “Benefits include better tracking
and moving of inventory, faster receiving and shipping, improved quality
inspection, fewer out-of-stock items resulting in improved shopper satisfaction,
greater predictability in product demand and better value for the shopper
as efficiencies occur.” Most industry analysts now agree on the following scenario:
RFID will be integrated into many if not all major supply chain systems
in the next two to five years. Then, if privacy concerns can be fully
addressed (still a big if), item-level tagging may follow, depending on
customer education and acceptance. Show me the money Suppliers are likely to bear the cost of the tags, while
retailers bear the costs of readers and the systems that will manage the
flood of information. Tag prices have been dropping steadily, and are
expected to drop faster after Wal-Mart and others increase demand. The cost to create an RFID network varies according to
the industry, how much merchandise is being tagged and the size of the
company. According to Women’s Wear Daily, analysts
estimate that RFID infrastructure investment for a $10 billion retailer
will cost $500 million. That excludes the amount being invested by manufacturers
to tag products, which still costs a relatively hefty 40 cents each. However, the same analysts estimate that RFID can eventually
save up to 1 percent of revenues, which can be a sizable amount, but could
take several years to realize. Wal-Mart will be both the test case and the driving force
in terms of costs. Wal-Mart’s spokesperson has declined to say how
much the retailer is spending on any technology. Cost is still the largest obstacle to the adoption of
RFID. Until the price per tag drops to 5 cents or less (which could happen
very soon), suppliers will see little incentive other than mandates from
the big guns like Wal-Mart. Likewise, the new hardware and systems will be a hard
sell to retailers who are comfortable with barcodes. For some retailers,
at some point, the benefits of RFID will start tipping the cost-benefit
ratio, and things will change. Which retailers will switch to RFID and at what point
is still hard to predict, although retailers with big-ticket items (furniture
and high-end consumer electronics, for instance) might find it cost-effective
sooner than other retail categories. Pharmacies are also likely to be
early adopters, as the benefits in tracking pharmaceutical products may
outweigh cost factors. Big Brother CASPIAN is only one of several groups fighting the widespread
use of RFID in retail. A total of 43 privacy groups, including the ACLU,
the Electronic Frontier Foundation and the American Counsel on Consumer
Awareness, have endorsed a strong position statement on consumer protection
from RFID. (The position statement is available at http://www.privacyrights.org/ar/RFIDposition.htm.) The privacy activists’ position, in a nutshell, is
that RFID technology, while appropriate at the supply-chain level, threatens
shoppers’ privacy when used at the item level or on store shelves.
RFID allows tracking and data collection on shoppers without their awareness
(unlike current customer loyalty cards, where a customer explicitly agrees
to share information about purchasing patterns in exchange for deals).
All serious players agree that certain consumer-rights
guidelines are essential for customer buy-in. The National Retail Federation,
for example, cites three areas of concern: consumer education, notice
and choice. Consumers must be informed of the basics of the technology;
receive notice that a product bears such a tag (via a logo, for example)
and have the choice to remove or disable the tag after purchase. EPCGlobal, Inc., the body that sets global standards for
the operation of RFID, has a similar set of principles, stressing consumers’
right to know what data is being collected, for what purposes and where
that information might go. (For more information see http://www.EPCglobalinc.org/about/faqs.html.)
The middle ground is to allow item-level tags in stores,
but protect the consumer after the sale by deactivating (“killing”)
the tag at the store’s exit. However, deactivation technology is
relatively new and fraught with complexities itself. According to MSU’s Clarke, the only way to completely
deactivate a tag is to destroy it—to separate the tiny chip from
its tiny antenna—difficult and impractical. But temporary deactivation
is possible, and may be effective enough for all but the most suspicious
minds. A survey conducted in October 2003 by Cap Gemini Ernst
& Young found that only 23 percent of consumers have even heard of
RFID, and of those that had heard of it, 42 percent viewed it favorably,
while 48 percent didn’t know or had no opinion. Thus, the crucial
work of consumer education lies ahead. Not ready for prime time Boyer emphasized that the hard work of managing the flood
of information coming in from RFID readers and making use of it will be
a huge task, challenging retail’s chief information officers and
their software partners. “They’re already swimming in a sea
of data without RFID!” he added. Clarke points out the many unresolved problems with materials
that he and his students are researching at Michigan State. “There
is a lot of research on RFID underway here in MSU’s packaging department,”
he said. Unlike simple printed barcodes, some RFID tags at certain
radio frequencies have particular trouble being read near metal or moisture,
making them very problematic for many retail implementations. “Right now there are huge problems with failure rates.
Wal-Mart has tested double-tagging pallets to lower those failure rates,
but that escalates suppliers’ costs,” Clarke explained. Clarke believes even Wal-Mart is perhaps rushing in too
fast, before researchers have worked out the big picture. He acknowledges,
though, that if a giant like Wal-Mart doesn’t push the technology,
the bugs will take much longer to work out. Like many others, Boyer and Clarke are taking a wait-and-see
approach. “RFID has the potential to revolutionize the way
retailers do business and the way consumers shop as much as the bar code
did a generation ago, but it has to be done right,” NRF Senior Vice
President for Government Affairs Steve Pfister said. No one would dispute that, and many are attacking the
numerous problems from different angles. When all these angles converge,
there just might be that retail revolution that’s been predicted.
Just don’t hold your breath. This article was written by Amy Buttery, Michigan Retailer staff writer. |
The
truth, of course, lies between these two extremes. But since terms like
RFID (radio frequency identification) and EPC (electronic product
code, the presumed successor to the barcode) are turning up in the retail
press, now is the time to become familiar with RFID technology and sort
the hype from the reality.
The
ways these tags can make shopping more fun are almost limitless. European
retailer METRO Group, which already uses RFID at its “Extra Future
Store” in Rheinberg, Germany, demonstrated some of the cool factor
at a large exhibit at the recent National Retailers Federation convention
in New York.