The great, though largely unfulfilled, promise of radio frequency identification (RFID) is that it can help streamline the supply chain and ultimately transform the retail industry through real-time product identification and tracking. Thanks to compliance initiatives launched by retail giant Wal-Mart Stores Inc. and the U.S. Department of Defense, revenues in the RFID market reached $400 million in 2004 and could top $4 billion by 2011, according to market analysis firm Frost & Sullivan.
"Better marketing of the technology has certainly been an effective driver for this market and is likely to be one in the years to come as well, as more retailers move towards equipping their stores and distribution centers with RFID," says Frost & Sullivan research analyst Shyam K.
Vendors are already getting actively involved in research on RFID and their continued support and involvement in issues facing the industry is essential for the technology to emerge a clear winner in the years to come.
While retailers' investments in systems that enhance the back-end have garnered the better share of attention for years, the focus is on the role the store environment can play in the quest for competitive differentiation and customer satisfaction. Despite all the positive signs pointing to an increased uptake of RFID, the capital investment associated with setting up an RFID system in terms of hardware, software and numerous systems integration expenses is likely to pose a significant challenge.
"The key to success in the retail RFID market depends on optimizing hardware, software and middleware roles and providing one-stop complete suites or solutions, which facilitate easy integration across the three domains," observes Shyam.
Additionally, while the benefits of RFID may look good on paper, vendors still need to establish a favorable cost-benefit ratio to popularize the technology on a wider scale.
"While RFID is reaching retailers across the revenue barrier, the high level of investment allows only the biggest retailers (typically $5 billion and above in revenues) to pilot and roll out the RFID technology in their stores and distribution centers," says Shyam.
Fortunately, the buzz surrounding RFID products is on the rise as vendors take steps to improve their marketing strategies and are conducting pilot trials across large retail chains such as Wal-Mart, Tesco, METRO, Target and Albertson's. These pilot projects are already starting to show tangible benefits in Wal-Mart outlets in terms of reduced inventory and out-of-stock conditions and are encouraging other retailers to move forward with RFID plans.