RFID Adoption Is On Target

By Bill Hardgrave

Retailers are deploying item-level tagging far faster than they embraced bar codes.

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Recently, I received a call from Virginia, an analyst assigned to examine RFID in the retail industry. She admitted knowing nothing about RFID when she got the assignment, but she had obviously done her homework. Virginia was familiar with the RFID Research Center's findings showing inventory accuracy improvement, out-of-stock declines and other benefits of the technology. She also was familiar with the RFID efforts of major retailers, including Kohl's, Macy's and Walmart. She said that, according to her research, only 2.5 percent of all apparel items in the United States are currently tagged.

Then, Virginia asked: "Is RFID for real? If RFID provides such great benefits, why aren't all retailers using it?" For those of us working with RFID every day, it is easy to forget how adoption must look to an "outsider." There are quite a few reasons for the current state of adoption.

First, it has only been a few years since RFID was initially used for item-level tagging. Walmart's 2005 pilot, which asked suppliers to tag pallets and cases, ushered in the use of passive ultrahigh-frequency RFID on consumer goods. Walmart's initiative and similar projects paved the way for the shift, in 2008, to item-level tracking pilots conducted by Dillard's and Bloomingdale's.

Second, 2008 and 2009 were not the best years for U.S. retailers to take on large capital expenditures. The Great Recession put most large projects on hold. Third, as the country emerged from the recession, Round Rock Research (a "patent troll") threatened to sue companies for infringing on its UHF RFID patents, which significantly delayed adoption. Fourth, RFID adoption has had to compete with a near-ubiquitous technology—the bar code.

I believe, in the long run, bar codes and RFID will coexist in a portfolio of auto-ID technologies. Because of their similarities (both auto-ID, both used in retail), comparing the adoption rate of the two technologies puts the pace of RFID adoption in perspective. The bar code's first retail pilots were conducted in the early 1970s; half a decade later, some 200 stores were using bar-code scanners. Item-level RFID is roughly five years old, but the technology is already in use in thousands of stores. It took more than 20 years for the bar code to reach critical mass in the retail market.

RFID "insiders" would like to see a faster pace of adoption, and RFID "outsiders" question whether the technology will be­come as pervasive as bar codes. Looking at RFID's brief history and the obstacles the technology has had to overcome, I believe its adoption is on target and we will see widespread use in the near future.

So, yes, Virginia, RFID retail adoption is for real.

Bill Hardgrave is the dean of Auburn University's Harbert College of Business and the founder of the RFID Research Center. He will address other RFID adoption and business case issues in this column. Send your questions to hardgrave@auburn.edu. Follow him on twitter at @bhardgrave.