Why retailers may find RFID is essential

WM Circle Logo

By: Wise Marketer Staff |

Posted on October 25, 2005

As retailers around the world step up initiatives to improve customer satisfaction and increase sales, RFID (radio frequency identification) - the 'wireless barcode' - is expected to become increasing popular with progressive retailers, according to a report from Frost & Sullivan.

When it comes to new technologies that have proved themselves effective (see 21 Oct. 2005), it's no longer just a matter of keeping up with the crowd. Retailers may soon find that a lack of RFID technology in their supply chain operations is what leaves them lagging behind in terms of customer satisfaction and competitive advantage.

Coupled with improved business processes and IT infrastructure, RFID technology promises to help streamline the supply chain and ultimately transform the retail industry through real-time product identification and tracking. And with a responsible approach to security and post-sale tag deactivation, all of this should be both possible and feasible without 'big brother' fears emerging among the consuming public.

Market forecast
The latest Frost & Sullivan analysis, entitled 'World Retail RFID Markets: A Retailer Perspective', revealed that revenues in this market totalled US$400.2 million in 2004, and are expected to reach some US$4,169.7 million in 2011. Indeed, RFID technology vendors are already getting actively involved in research, and their continued support and involvement in issues facing the industry will certainly be essential for the technology's widespread adoption in years to come.

According to Frost & Sullivan research analyst, Shyam K., "Better marketing of the technology has certainly been an effective driver for this market, and is likely to be one in the years to come as well, as more retailers move toward equipping their stores and distribution centres with RFID."

The report predicts that, while retailers' investments in back-end system enhancements have garnered the lion's share of attention for many years, their future focus will be more on the role the store environment can play in the quest for competitive differentiation and customer satisfaction.

Investment barrier
But despite all the positive signs pointing to increased adoption of RFID technology, the capital investment associated with setting up (in terms of hardware, software and systems integration expenses) is likely to pose a significant challenge. And it's not only the initial costs: tag prices are widely accepted as being a major hurdle until the average price comes down to just a few US cents per tag.

According to Shyam, "The key to success in the retail RFID market depends on optimising hardware, software and middleware roles, and providing one-stop complete suites or solutions, which facilitate easy integration across the three domains. Additionally, while the benefits of RFID look extremely good on paper, vendors still need to establish a favourable cost-benefit ratio to popularise the technology on a wider scale."

Major players only?
So while RFID is starting to reach retailers across the "revenue barrier" the high level of initial investment required still allows only the biggest retailers (typically those with US$5 billion+ in annual revenues) to pilot and roll out the technology in their stores and distribution centres.

The buzz surrounding RFID products is on the rise, thought, as vendors take steps to improve their marketing strategies and are conducting pilot programmes with large retail chains such as Wal-Mart, Tesco, Metro, Target, and Albertson's. These pilot projects are already starting to show tangible benefits in Wal-Mart outlets (in terms of reduced inventory and out-of-stock conditions) and already seem to be encouraging other retailers to move forward with their RFID plans.

The World Retail RFID Markets report is part of Frost & Sullivan's 9212 subscription, and analyses the potential of RFID technology in the retail space. It also discusses the various market trends and opportunities while providing in-depth analysis of market share, forecasts, drivers, restraints, and revenues.

And the future of RFID?
The Wise Marketer's sister publication, Using RFID, has negotiated some free delegate places at next month's 'RFID Futures' forum (at Heathrow, London, on 7th November). If you'd like to be part of it - as our guest - call Martyn James on +44 (0)1833 344799 or email him (martyn@entevents.co.uk) and tell him you're a Wise Marketer reader, and he will organise your free place (instead of the 495 fee if you forget to mention us!)

The forum will address the likely wider impacts of RFID on society and retail as a whole, also looking at the upsides and dangers involved. How do you balance the pros and cons, and how should we address privacy concerns while still recognising the benefits? The conference should be of great interest to anyone who wants to understand the real implications of RFID and where it's heading. There are more details here.

More Info: