The Secret Life of RFID

Retailers that don't reveal information about their deployments are slowing adoption and reducing their own ability to benefit from the technology.
Published: December 1, 2012

When I was a young reporter based in Hong Kong, I met a curmudgeonly British journalist who had covered World War II and the Vietnam War for The Times of London. He’d made Hong Kong his home, and he lived mostly on his reputation. Chatting over a beer, he would tell me: “The best stories never get reported.”

What he meant, of course, is that the real dirt never gets revealed, because the people involved are too powerful. Still, I’m reminded of his comment every time I hear about a successful radio frequency identification deployment that a retailer prefers to keep secret, because the company feels there is nothing to be gained by letting its competitors know about the benefits the technology is providing.

Photo: iStockphoto

Only a few retailers, including American Apparel, Macy’s and Walmart in the United States, and Charles Vögele and Gerry Weber in Europe, have publicly discussed their RFID deployments. Yet, “19 of the top 30 retailers are actively investigating, piloting or using RFID today, that I am aware of,” says Bill Hardgrave, dean of Auburn University’s College of Business and founder of the University of Arkansas’ RFID Research Center. These include both department and specialty stores, says Hardgrave, who has worked with many leading U.S. retailers.

It’s certainly understandable that companies don’t want to let their rivals in on a good thing. Retail is intensely competitive, much more so than, say, health care. Every little edge might help. But keeping RFID deployments secret is unnecessary and potentially self-defeating.

That’s because the basic RFID applications—inventory management, replenishment, product locating and shrinkage reduction—enable retailers to execute better on their existing strategies. They may give retailers a slight edge. If you don’t have the right products on your shelves when customers want to buy them, they’ll go shop somewhere else. But they do not change a retailer’s existing strategy in a way that would provide a significant competitive advantage.

Retailers compete on image, style, quality, price and getting the customer into the store. If they have the right image, style, quality and price—and, presumably, they feel they do—RFID will help them take better advantage of that mix. That, in turn, will help draw customers in—and ensure they walk out with the items they came for.
When retailers don’t discuss publicly how they are using basic RFID applications, it slows adoption and reduces their own ability to benefit from the technology. If CEOs hear that more retailers are using RFID, they will begin to investigate the technology.

If suppliers knew how many of their retail customers were actively pursuing RFID projects, they could gear up to meet tagging requirements—most retailers are RFID-tagging items in their distribution centers rather than at the source of manufacture, which is costly and inefficient. It also would make it easier for suppliers to use RFID to achieve internal benefits.

If RFID tag and reader manufacturers knew how many retailers were deploying the technology, they would have more confidence to invest in expanding production. That would lower equipment costs for all retailers and ensure a steady supply of product (retailers have been experiencing delays getting both RFID transponders and handheld readers).

As tagging at the item level becomes more widespread, it will be easier for retailers to use RFID to execute on their existing strategies—that is, RFID won’t be the differentiator, but it will help with an existing strategy of differentiation. For example, if a retailer’s goal is to sell goods at the lowest prices possible, it can use RFID to reduce supply-chain waste and costs. Or, if the goal is to sell expensive goods to high-end customers, the retailer can use RFID to enhance the shopping experience. This is something CEOs should be thinking about now, as they plan to deploy these basic applications.

The savviest retailers will go a step further and find new and creative ways to use RFID to get a competitive edge. A true omnichannel retailer, for instance, could disrupt online retailers, such as Amazon and Zappos, by offering same-day deliveries from nearby stores).

Some companies, notably Macy’s and Walmart, understand it is important for tagging to become widespread and are speaking publicly about their plans. While they are not revealing all the benefits they are seeing or every way they plan to use RFID, they understand that competitive advantage doesn’t come just from the technology, but from how a retailer uses the technology.