Why More Retailers Haven’t Invested in RFID

By Mark Roberti

Is it that they don't understand the value of the technology, are afraid to take risks, or have other priorities?

I recently received a call from a university student who is studying the adoption of radio frequency identification in retail. She was interviewing experts to understand more deeply why the technology has not yet become widespread. It's an interesting question, and it's one that I have thought a lot about. So, I'd like to share my thoughts.

First, let's put the discussion in context. Retailers have been struggling with lost sales due to out-of-stocks since, well, forever. Study after study shows that at least 8 percent of items are out of stock at any given time. But it's even worse: inventory accuracy is only at about 65 percent in many stores, and customers leave stores about 30 percent of the time without finding at least one item they want to buy. Poor inventory accuracy reduces a retailer's ability to show products to online customers.

RFID enables companies to boost inventory accuracy to about 95 percent without having to invest in additional labor. If their suppliers bear the cost of the 7- or 8-cent tag, the retailer only needs to purchase the hardware and software that captures the data, and then train staff members to act on that information.

What is the result of using RFID to boost inventory accuracy? Well, University of Leicester Professor Adrian Beck recently studied 10 European retailers and amalgamated the results for a new report, titled "Measuring the Impact of RFID in Retailing: key lessons from 10 case-study companies" (see Sales Are Up and Overstocking Is Down, Study Repots, Due to RFID Use in Stores). The benefits that these 10 companies discovered are impressive.

According to the report, RFID increased sales. Seven of the 10 case studies shared data showing a sales improvement in the range of 1.5 to 5.5 percent. "For the 10 companies, this could amount to a RFID-driven sales uplift of between €1.4 billion and €5.2 billion," the study indicates. That's US$1.7 billion to $6.4 billion for just 10 companies.

RFID also improved inventory accuracy. Companies typically improved from 65 to 75 percent and 93 to 99 percent accuracy. It also increased stock availability, reduced inventory levels, and decreased shrinkage and staffing costs. All 10 businesses said they achieved a return on their investment in RFID.

So the question, then, is this: With these kinds of benefits, why isn't every major retailer on Earth using RFID?

One possible explanation is ignorance. A lot has been written at RFID Journal about the value of RFID. Most retail magazines have given some coverage to the value that the technology has been delivering, but I've read several research studies about the changes retailers face, and most do not mention RFID. They simply stress the need to improve inventory accuracy without explaining how that can be done.

Another reason is that new technologies simply take time to be widely adopted. There is a process that almost all new technologies follow, according to Geoffrey Moore, the author of Crossing the Chasm and other books on the technology-adoption lifecycle. It begins with the birth of a new technology. Then, there is a wave of optimism about what it can do, followed by the realization that it can't yet deliver on its potential. Slowly, the technology matures into a solution to particular problems, and then it takes time to build critical mass, after which the technology crosses the tipping point. At that stage, adoption accelerates rapidly. RFID is currently in the process of building critical mass in retail, and I believe it will do so within three years.

That being said, I believe that one key reason RFID has not been more widely adopted among retailers, particularly in the United States, is an aversion to risk. Investors punish companies that fail to consistently hit their numbers, which makes CEOs leery of investing in any new technologies. Ironically, if a technology is transformational, as RFID is, it becomes more risky to the CEO trying to hit his or her number for the next quarter.

One way or another, however, RFID will be adopted. If existing retailers are unwilling to deploy the technology, new ones will enter the market with new business models that use RFID and other technologies to seamlessly merge online and physical channels, and that will compel conventional retailers to adapt. The only question is how long it will take.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or the Editor's Note archive.