Survey Shows Half of U.S. Retailers Have Already Adopted Item-Level RFID

By Claire Swedberg

The survey, conducted by Accenture on behalf of the VICS Item Level RFID Initiative, finds that if tag prices continue to drop and adoption momentum remains steady, most retailers will be using RFID technology within five years.

Most major apparel and footwear retailers will adopt item-level radio frequency identification within some part of their business over the next three to five years, according to data derived from a new survey sponsored by the VICS Item Level RFID Initiative (VILRI), as well as adoption rates to date, the survey's authors report. The survey, conducted by technology services consulting firm Accenture, asked 116 retailers and their suppliers a series of questions regarding their use of item-level RFID tagging. The results, published in a report titled "Item-Level RFID: A Competitive Differentiator," indicate that the industry is nearing a "tipping point" in which the technology will be broadly adopted, according to the Accenture analysts who wrote the report.

VILRI is the creation of the Voluntary Interindustry Commerce Solutions (VICS) Association, a consortium of apparel and footwear retailers and suppliers. Joe Andraski, VICS' president and CEO, says the survey results confirmed a trend toward the adoption of item-level RFID technology by retailers and suppliers that he was already aware of, but that has often been out of the public eye. Some retailers have made no secret about their plans to apply passive RFID tags to garments and equip stores with RFID readers, he says, in order to improve supply chain visibility and reduce out-of-stocks, including Macy's (see Macy's Inc. to Begin Item-Level Tagging in 850 Stores). However, Andraski notes, many others have been reluctant to describe those activities publicly. The survey, he reports, confirms that a large percentage of retailers, as well as many suppliers, either are currently using RFID or plan to employ the technology.

Accenture's Russ Beverly

In fact, adds Russ Beverly, a senior manager within Accenture's retail practice and one of the report's co-authors, the expectation, based on the survey, is that most retailers will be utilizing RFID over the next few years, "assuming the current momentum holds, based on the forward-looking statements of the respondents and the speculative value they placed in RFID."

During fall 2011, Accenture worked with VILRI to develop a list of relevant questions regarding the use of item-level RFID, and then queried past and present VILRI members. Of those 116 respondents, 43 percent were retailers, while the remaining respondents consisted of suppliers, including goods manufacturers, wholesale firms and vertical retailers (those that manufacture the products the retailers sell at their stores). Fifty-four percent of those interviewed indicated that they earned more than $1 billion in annual revenue. Surveys were completed in September and October 2011, after which Accenture analyzed the results and created the report, which is now available for download at VILRI's Web site.

In addition, more than half of the suppliers interviewed have either piloted or deployed RFID within their own facilities, while approximately 40 percent of that group have also taken part in item-level RFID pilot projects with three or more retailers, and 13.3 percent have done so with seven or more. Sixty percent reported participating in such projects with one or two retailers.

Among retailers that have implemented radio frequency identification, 77 percent reported plans to scale their item-level RFID program to include additional categories or products than what was already being tagged and tracked. About 40 percent of suppliers reported the same goal.

For respondents that have not yet implemented item-level RFID within their operations, 48 percent of retailers indicated that they are seriously considering piloting the technology in the near future, while around 14 percent said they currently have no plans to deploy RFID. The study also found that for the majority of suppliers utilizing the technology, retailer requests were driving the adoption of item-level RFID—80 percent reported having adopted it in order to satisfy the requests of customers (retailers).

Moreover, of the 48 percent of suppliers that have not implemented item-level RFID, only about 17 percent said they are seriously thinking about piloting the technology in the near future, while approximately 56 percent indicated being cautiously optimistic about RFID but waiting to see more progress in the industry.

One key concern, Beverly says, remains tag cost. The cost of passive EPC Gen 2 ultrahigh-frequency (UHF) tags themselves is decreasing steadily, though the largest decrease occurred in 2009; at present, tags cost about 33 percent less than they did in 2008. The typical price of an EPC inlay (a chip and an antenna mounted on a substrate) is slightly higher than 10 cents, says George Kraev, senior analyst of security and ID at ABI Research). Despite the low tag price, Beverly says, "we saw that folks felt it [cost] was one of the biggest barriers to RFID adoption. As much as we would like to say that's behind us, it's still front and center on the minds of respondents." In fact, he notes, the cost of tagging and of hardware were most often cited as challenges facing respondents' item-level RFID programs. Therefore, the authors say, as tag price continues to fall, broader RFID adoption will likely ensue.

What's more, Beverly says, the study also finds that concern regarding the technology's maturity is low, for both retailers and suppliers—ranking ninth and seventh, respectively—below costs and organizational challenges, for example. This, he says, is another sign that RFID adoption can be expected to increase.

Furthermore, the report provides a rate calculation of sales lift required to break even on an item-level RFID investment. Assuming a total tag cost (for tag materials, plus labor) of 30 cents, and a unit profit margin of $1 for the item being tagged, a sales lift would need to be 30 percent in order to break even. However, for an item with a unit profit margin of $20, the sales increase would only need to be 1.5 percent to reach the break-even point. Naturally, that break-even figure drops with a lower total tag cost. For example, assuming a total tag cost of 20 cents and a $1-per-unit profit margin, the increase in product sales would need to be 10 percent in order to break even, while a product with a $20-per-unit profit margin would require only a 0.5 percent sales increase to cover RFID investment expenses.