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Companies turn to RFID to
prosper during economic slump

12/01/08 | John R. Johnson | email

The general feeling around the RFID industry is that 2008 will go down as the year that the technology finally gained its footing and started on the path to becoming ubiquitous. The fact that the technology reached this level during a worldwide economic slowdown speaks volumes for the future of RFID.

Many analysts believe that the technology is poised to take off once the economy recovers and IT budgets are somewhat restored. While some projects have been put on hold because of the poor economy and the financial crisis, many have moved forward. And as venture capitalists show a continued willingness to pour money into RFID, some enterprises see RFID as a tool to help them increase margins and sales during these lean economic times.

In the process of going live with item level tagging, American Apparel reported a sales gain of 15 percent.

"The benefits that the global retail sector is reaping from RFID technology is truly a bright spot in an otherwise tough 2008 holiday buying season and we expect even greater gains in 2009," says Dan Mullen, president of AIM Global, which released a research brief today on RFID's impact on the retail sector.

American Apparel, which is in the process of going live with item level tagging at each of its more than 200 U.S. stores, reported an immediate sales gain of 15 percent after deployment at its first store at Columbia University in New York this fall. On top of that, the company removed 60 hours of labor from its processes, and the RFID system makes 99 percent of store inventory immediately available to customers on the sales floor.

Imagine the sales lift American Apparel could gain by having RFID-enabled checkout lanes at all of its stores during the busy holiday period. While most stores struggle for single digit increases, RFID could help American Apparel far exceed those numbers.

"The fight for the consumer dollar is more relevant than ever given the economic times," says Mike Liard, research director for RFID & contactless at ABI Research. "RFID can help reduce that out-of-stock challenge. The technology can make sense in a tough economy from a technology and business benefit and operational efficiency point of view."

Liard also notes that some of the limited scale deployment and pilot programs currently planned might be immune from current economic pressures do to their size and scope.

Patrick Sweeney, founder of ODIN technologies, says that the overall feeling at last month's ID World International Congress in Milan was that "2008 was the year that RFID crossed the chasm as a technology."

Sweeney says the move started out with specific industries, such as retail and healthcare, and predicts that 2009 will see full scale adoption as budgets allow. Medical device makers, industrial manufacturers, and aerospace companies looking to cut costs are likely to be the leaders. In addition, large retailers who have the cash to beef up their RFID infrastructure are likely to show greater margin improvement when the economy rebounds. The beauty of the technology, Sweeney says, is that users are discovering that once their RFID infrastructure is in place, "incremental benefits are nearly free to users."

Another sector expected to see big gains in 2009 is IT asset tracking, which can provide a nice return for financial firms trying to cut costs in dire economic times. Although Sarbanes Oxley compliance issues are pushing the RFID trend to some extent, the bottom line is that IT asset tracking for financial institutions is a manually intensive process where RFID can bring huge labor savings.

Reik Reid, managing director and senior analyst at Baird, says that so far, the RFID sector has dodged most of the bullets from the poor economy. Although sales have slowed in many industries this year, Reid notes that a good amount of pilots and deployments are still occurring in apparel and other sectors. "There are some good projects out there," he says. "Aside from apparel, the financial services industry, despite all their woes, needs better visibility. And there are good pilots in the medical industry which is somewhat resistant to economic turmoil. I have heard of some projects being pushed back in the space, so RFID is not immune to it. But it is holding up at least reasonably well in the terms of the overall economy."

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