May 29, 2007This article was originally published by RFID Update.
May 29, 2007—UK-based research firm IDTechEx has published an update on the retail market for RFID. All in all, the market continues to be a challenging one for vendors, with relatively soft demand exacerbated by imperfect read rates. Following are some of the highlights from the IDTechEx article. (For another recent take on the retail market for RFID, see AMR Analyzes Three Years of RFID Adoption in Retail.)
- IDTechEx characterizes the market as "still struggling to take off." The company points to the spate of inlay and tag price reductions announced by various vendors in late 2005, a loss-leader pricing strategy meant to spur demand. A year and a half later, the hoped-for demand has not materialized. (However, according to conversations RFID Update has had with inlay providers, some are at least selling enough inlays to break even.)
- IDTechEx projects that 2007 will see a total of 375 million RFID tags used for the retail sector this year.
- Despite the widely-praised performance improvement of Gen2 RFID technology, imperfect read rates persist as a barrier to wider adoption by the retail market. IDTechEx cites some manufacturers, like Sara Lee, that see read rates as low as 70% or even 30% on certain frozen products.
- For some retail end users, writes IDTechEx, read performance is even more important than per-tag cost, long cited as the leading hurdle to adoption. Without reliable read rates, it is difficult to implement reliable applications that deliver return on investment (ROI).
- The physical constitution of a retail supplier's products can have a large impact on its business case for RFID. Witness giant consumer packaged goods manufacturer Kimberly Clark, maker of facial tissues and diapers. It can achieve much better read rates on its largely paper-based goods than, say, Sara Lee can on its frozen goods. This RF friendliness has allowed the company to achieve good payback from an RFID-based out-of-stock (OOS) reduction initiative deployed at 500 stores. IDTechEx notes, however, that "Kimberly Clark is unfortunately the exception rather than the rule."
- Reducing OOS continues to be a highly compelling value proposition, and to the extent that RFID can help do so, it will be easy to justify the expense. Wal-Mart estimates that even an OOS and inventory inaccuracy reduction of 10% would result in aggregate savings of a quarter billion dollars annually.
- Soft demand from the retail sector for RFID tags becomes starkly evident when one considers the tag purchases of some of the largest suppliers. Twelve-billion-dollar Sara Lee plans to use only 50,000 tags in 2007, according to IDTechEx, while CPG juggernaut Procter & Gamble only used "several million" last year.
- IDTechEx notes that despite the difficulty for vendors of tags, other RFID vendor categories are making money selling to the retail market, including RFID printer suppliers, systems integrators, and software development firms.
A comprehensive analysis of RFID adoption by the retail market is available in the May issue of IDTechEx's RFID Analyst.