Retail industry spending on RFID not keeping up with budget plans

The overall promise of RFID in retail environments is leading to larger budgets for RFID projects, but many retailers, confused about what to deploy, are holding off on spending, research and advisory firm Aberdeen Group says in a new study.

The percentage of retail enterprises with budgeted funds for RFID projects increased to 11.3% in the fourth quarter from 5.6% in the first quarter of 2006, but the percentage of retailers actually spending those budgeted funds was 6.5% in Q4 and 4.6% in Q1, Aberdeen says in its “RFID in Retail Benchmark Report,” which is based on a survey of more than 120 retail enterprises in January and February.

RFID, or radio frequency identification, uses a system of radio frequency tags and readers to track the movement of products, such as from suppliers to retailers’ distribution centers and store shelves.

The Aberdeen report also notes that retailers considered best-in-class in RFID deployments have produced notable results; for example, 30% decrease in inventory replenishment time, 42% fewer incidents of theft, 25% less customer wait time at the point of sale and 25% reduction in merchandise spoilage and price markdowns.

But while the leaders in RFID deployments—including Wal-Mart Stores Inc., Rite Aid Corp. and Best Buy Co. Inc.—are starting to produce positive results, it may take a long time before such experiences reach other retailers who have yet to deploy RFID projects because the needs among retailers vary so widely, experts say.

“Just because a big retail pharmacy can do it, doesn’t mean that a grocer can,” says Russ Klein, vice president and senior analyst for emerging technologies and information systems at Aberdeen Group, a unit of Harte-Hanks Co. He notes that pharmacy chain RiteAid Corp., for instance, has deployed RFID tags and handheld RFID scanners to manage replenishment of some in-store items.

Aberdeen points to three reasons many retailers have been slow to spend on RFID projects:
• There is no single and established roadmap to RFID adoption in the retail industry,
• Confusion over which RFID technologies and applications best address retail-specific challenges,
• Retail chief technology officers prefer to take a wait-and-see approach to technology improvements promised by RFID vendors.