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JANUARY 31, 2005
By Sarah Lacy RFID: Plenty of Mixed Signals [Page 2 of 2] LINGERING MISCONCEPTIONS. Consultants and analysts say many outfits, unlike Kimberly-Clark, haven't even been able to articulate a clear business case for making such large investments -- aside from appeasing Wal-Mart, that is. Most of the near-term payoffs have to do with reducing labor costs in stores, stemming shoplifting, or increasing sales by keeping hot products on the shelves -- all clear benefits for a retailer. But few really know how manufacturers will use this torrent of data and whether such info will lead to higher sales or better cost savings. "They haven't figured out what the quantum leap in information will be," says Chris Jones, analyst at Boston research firm Aberdeen Group, who adds: "It's just a higher-cost bar code." Also, the technology is still new. Many of the suppliers are small, unknown startups, like Alien Technology in Morgan Hill, Calif., which produces tags, or ThingMagic in Cambridge, Mass., which makes readers. EPC Global, the retail and manufacturing industries' technology standard-setter in December signed off on a long-awaited set of specifications for RFID chips. Now, with one standard, manufacturers won't have to worry about the chip they buy being incompatible with a retailer's readers. RELUCTANT PIONEERS. In fairness, few retail suppliers are fond of using cutting-edge technology, and no one should expect that attitude to change. Only 20% of the suppliers that fell under Wal-Mart's mandate consider themselves early adopters of technology, according to an Aberdeen Group report from March. "The mandates are putting tremendous pressure on companies that don't have histories of early adoption of technology and experience preparing for the risk associated with those new technologies," says Aberdeen. Most still buy the ultimate RFID vision -- but they say it's at least a decade off. It's a technological catch-22: They're reluctant to spend the money because they think its benefits are a long way off, yet they can never see those benefits if they don't spend the money. "Most suppliers are considering their entire technology investments in RFID a throwaway," Jones says. The result? Much less money was spent before Wal-Mart's January deadline than was generally anticipated just six months ago. More than 130 Wal-Mart suppliers collectively have laid out $250 million on RFID to date, according to AMR Research. That boils down to $1 million to $3 million per company -- a far cry from the $13 million to $23 million per company AMR predicted in August. GROWING PRESSURE. Analysts -- and suppliers -- hope outfits issuing mandates will take note of Wal-Mart's experience and alter their approaches. The Defense Dept., for one, has taken a more measured approach, as have retailers like Best Buy (BBY ), analysts say. "Target (TGT ) had a similar stance to Wal-Mart in technical requirements, but it learned from the backlash and has been more open to collaboration," says AMR's Romanow. "When you're No. 2, you can see the path that's already been paved." But suppliers can hold out only so long. As the big retailers' march toward RFID continues, even the basic slapping-and-shipping costs will be unsustainable without investing in the readers and software to get the real value from RFID data. "I haven't heard any of these [mandating companies] say 'just kidding,' so there's still pressure out there to keep this thing moving," says Lyle Ginsburg, managing partner of Accenture's RFID group. One way or another, RFID will become common. It's just a question of who takes advantage of the technology -- and when.
 Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau
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