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Wal-Mart's RFID apparel deployment could push global acceptance for item-level tagging

07/26/10 | John R. Johnson | email

It's not often that RFID ends up on the front page of the Wall Street Journal. But it's not often that the world's largest retailer goes public with its technology plans either. Wal-Mart used to be quoted widely about its plans for RFID in the supply chain. Then a light bulb went off; the retailer realized that RFID is far more valuable at the store level, and on specific items.

And while Friday's article in the Journal wasn't exactly breaking news, it did cement the fact that Wal-Mart is pursuing item-level tagging for certain lines of men's jeans and underwear. Industry experts predict that Wal-Mart will consume 30 million tags over the next 12 months just on those lines. If the launch is expanded, and it likely will when Wal-Mart sees the proper business value, the retailer's use of RFID could explode and catapult item-level tagging to global acceptance. Down the road, it's entirely possible that Wal-Mart could use hundreds of millions of tags while not even approaching a full apparel rollout.

"This is the beginning of the whole retail item-level tracking thing in the big world," says Drew Nathanson, senior RFID analyst and director of research operations at VDC Research Group, Inc., who says that retailers will use more than 800 million RFID tags in 2011.

"We've seen some of these other applications with retailers but this shows it's not only sparse deployments. You have the number one retailer in the world saying that this is the way we're going to get more profit and more efficiency."

Item-level tagging for apparel has been a sweet spot for the retail industry for years, although projects have been limited in scope, with many small pilots. There have been some exceptions, such as American Apparel's well-documented item-level program, some very successful footwear programs in Europe, and, more recently, the Gerry Weber chain. The company will be the first German retail company to roll out RFID technology combining inventory management and loss prevention. Gerry Weber will rely on an Avery Dennison supplied RFID solution in more than 25 million garments a year through an RFID chip imbedded in a care label. This solution will optimize Gerry Weber logistics and retail processes, reduce theft and ensure stores are well stocked with popular items.

American Apparel operates about 300 stores. That's a significant rollout, but considering that Wal-Mart operates well over 300 retail outlets in Texas alone, it's understandable how this deployment could scale significantly.

"If Wal-Mart moves forward with this by rolling it out to all stores it would dwarf all other initiatives to date," says Bill Hardgrave, founder and director of the RFID Research Center at the University of Arkansas. "It's just another indication that we are moving down the item-level path very quickly. The fact that retailers are embracing RFID is nothing new. The fact that Wal-Mart it out there talking about its current plans is what caught everyone's attention. It's been a while since they've talked about this."

The ramifications of Wal-Mart pushing item level tagging go well beyond the apparel sector and retailing. For starters, Wal-Mart has great clout with its suppliers, and this initiative will cause tagging to be pushed down the value chain quickly, resulting in more tagging at the source of manufacture. Additionally, the move will force competitors like Target to enter the game quickly. Target has remained very quite about RFID, but it's believed the company has learned from others and could be ready to dive into the technology soon.

"Any time that [Wal-Mart] does something, everyone wants to understand what it is, why, and what kinds of benefits are being gained," says Rose Depoe, global director of RFID strategic solutions and alliances for Avery Dennison Retail Information Services. "In general, in retail the quickest categories to adopt are those that are most complex in terms of SKU management. So in apparel, when we talk about the Wal-Mart announcement being for jeans and underwear, nearly all of them start with areas that are the most complex to manage. This is true for the 20 or 30 projects we're involved in now."

Such a big push by the retail sector could drive prices down further, opening up other opportunities in other industries. The pharmaceutical sector, which has seen stop-and-go item-level tagging, could  expand tagging initiatives if pricing drops further.

Last month RFID 24-7 published VDC Research's predictions for the retail segment that includes a prediction for more than 10.5 billion tags sold by 2014, of which 3.4 billion will be used in retail, including item-level tags, as well as tags used for smart courtesy cards and access control.

"This all kind of goes along with that retail forecast that we've discussed where you see a huge number going up because they will be doing it continuously not only by store, but by additional product lines," says Nathanson. "If [Wal-Mart] get the benefit they are expecting from it, you'll see this [expand] fairly quickly."

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