))) High-Tech ID System Would Revolutionize Retail Industry

Chips allow for faster checkout, better tracking

Doris Hajewski
February 9, 2003

The same technology that allows drivers to whiz through tollbooths without lowering a window and to pay for gas by swiping a key chain at the pump will someday make it possible for shoppers to check out of the grocery store just as quickly.

Radio frequency identification, known as RFID, is already a fact of life for drivers who use E-ZPass cards at tollbooths and Mobil Speedpass cards at the gas pumps.

Now retailers and consumer product manufacturers -- giants such as Wal-Mart, Pepsi and Procter & Gamble -- are working toward making RFID systems part of life for everyone who shops.

RFID systems are sometimes described as the next generation of the bar-code systems now used by retailers to identify products. RFID represents an improvement because the computer chip that is embedded in the product can hold more information, and it can be read without a hand-held scanner.

RFID works like this:

During the manufacturing process, a tiny computer chip is embedded in a product -- anything from a can of soda to a pair of jeans. The chip has information that identifies the item and where it was made.

As the item passes through the factory, the delivery system and into the store, it can be tracked by antennas along the way. The antennas send a signal, and the embedded chip bounces back another signal with the information. The data go into a computer and are available to anyone in the loop who needs it.

Privacy a concern

Retail systems experts who met at the National Retail Federation convention in New York last month were excited about what RFID could mean for their businesses.

Makers of RFID equipment say the system could speed the delivery process and make it easier for stores to stay in stock and keep track of what's on their shelves and in their warehouses. In the front of the store, RFID systems can provide more information for shoppers, speed checkout and cut down on theft.

But retailers worry about the privacy concerns raised by the prospect of all that merchandise leaving the store with live RFID tags.

Imagine a home of the future, where the shampoo bottle was capable of announcing its presence. Or imagine walking into a store wearing a jacket that tells the store's antennas where and when you bought it.

"You have to be able to deactivate the tag," said Peg Selian, a store systems analyst for L.L. Bean, the Freeport, Maine, clothing catalog. Otherwise, the store would be able to trace merchandise when it leaves the store, Selian said when she spoke on a panel at the National Retail Federation convention.

Suppliers say the privacy concerns are minimal and are far outweighed by the benefits of the technology.

"It does have a nice return on the investment," said Bill Allen, marketing communications manager for Texas Instruments, one of several companies that makes RFID systems. "We foresee that RFID will be adopted, however, we think that tagging every item in the world is sometime in the future."

Expensive technology

Eric Peters, senior vice president of market strategy for Manhattan Associates, an Atlanta software manufacturer, expects product tagging to be widely adopted sometime between 2004 and 2007.

Retail store system executives who talked about the technology at the retail convention last month agreed that there are two stumbling blocks that need to be overcome before retailers can consider widespread use for individual low-price items.

"The tag price has to come down," said Allen, "and universal standards have to be set."

The current 5-cent per tag price seems cheap but is still too expensive for low-price items, retailers say.

"At Kohl's, we have too many items in the store to put tags on all of them until the price comes way down," said Mike Krug, manager of store systems and store administration for Menomonee Falls-based Kohl's Corp.

Kohl's is concentrating on improving checkout procedures, and it will soon begin testing in-store kiosks that can help customers find out-of-stock sizes and colors at other stores, or on the company's Web site.

Some of the world's largest companies are among the 38 end users and 48 technology vendors who are sponsoring the Auto-ID Center, a not-for-profit global research organization at the Massachusetts Institute of Technology. Founded in 1999, the center's mission is to design the infrastructure and develop the standards to create a universal, open network for identifying individual products and for tracking them as they flow through the global supply chain.

Sponsor members include some of the largest U.S. retailers: Home Depot, Lowe's, Target and Wal-Mart.

It's early in the process, and so far no major retailer has adopted the technology for an all-encompassing tagging system. But several companies have been testing RFID.

The CVS pharmacy chain is expected to begin a two-store test by midyear using tags on prescription drugs, and The Gillette Co. has announced the first wide-scale pilot program. The personal-care products manufacturer has ordered a half-billion tags that will be attached to its Mach3 razors.

Deterrent to theft

Perhaps the most dazzling use of RFID technology is by Prada, at the Italian luxury retailer's new flagship store in the SoHo district of Manhattan. Garments carry RFID tags with information on designers and available colors, and clerks are armed with hand-held devices that can display the information for customers.

Once inside the dressing room, an antenna will read the tag and display the information on a plasma screen. The tags are removed at the time of purchase.

"It's future shopping," Allen said.

Perhaps one of the most valuable uses for RFID tags on the selling floor will be as a way of reducing fraudulent returns, said Allen, of Texas Instruments.

Gap Inc., after experiencing huge losses on the fraudulent return of merchandise stolen during the manufacturing or shipping process, ran an RFID experiment recently to stem the trend, Allen said.

The San Francisco chain placed tags on jeans at the factory. At the point of sale, the cash register would write data onto the tags that indicate that they had been purchased. If they were stolen, anyone attempting to return them would be identified as possessing stolen merchandise.

Some experts say they believe that the grocery industry may be the last to adopt RFID technology, because of cost issues and the challenges of bringing myriad suppliers on board with the process.

But if and when grocers go to RFID tagging, it would make long lines at the checkout disappear because an antenna at the checkout could scan the entire basket and ring up a total within seconds, said Peters, of Manhattan Associates.

Technology vendors have varied opinions on the privacy issues raised by several retailers, who suggested the tags could broadcast information after purchase.

"It's impractical to think that someone could develop a reader to track what's in your house," said Allen, of Texas Instruments. The typical distance now for antenna readers is six feet.

Removing tags at the time of purchase would solve the problem, Peters said. One way or another, the industry will have to allay privacy concerns.