Wal-Mart declared radio frequency identification (RFID) a success yesterday and announced plans to expand the pilot program to 600 stores and a dozen distribution centers by fall...

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NEW YORK — Wal-Mart declared radio frequency identification (RFID) a success yesterday and announced plans to expand the pilot program to 600 stores and a dozen distribution centers by fall.

Considered one of the most significant changes coming for retailers, RFID technology is used in tags with a computer chip and an antenna that emits a radio signal. The tags are expected to replace bar codes in the next decade.

The tags are attached to a product or a box and provide product information that can be read by a scanner, similar to how bar codes are read. The tags eliminate the need for an employee to scan each item by hand and instead allow reading a whole pallet full of goods in a single wave.

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Retailers say RFID tags will cut down on inventory losses, which total about $53 billion a year, and help them track each product from its inception to the warehouse and on to the store shelf.

Linda Dillman, executive vice president and chief information officer for Wal-Mart, told a National Retail Federation annual conference in New York that the potential uses of RFID are just starting to become apparent.

“We all believe it’s going to benefit everyone involved,” Dillman said. “I don’t think any of us understand the full impact yet.”

Wal-Mart required its top 100 suppliers to begin using RFID tags in their shipments by January. The experiment began with 137 suppliers in 104 Wal-Mart stores, 36 Sam’s Club warehouse stores and three distribution centers in Texas.

RFID consulting, implementation and management is expected to grow to a $2 billion industry by 2008, according to a report from consulting firm IDC.

“The potential savings across the supply chain are enormous. That’s why there’s so much excitement about this,” said Joe Dunlap, RFID specialist at Siemens.

Officials from retailer Metro Group of Germany and Tesco, the largest retailer in Britain, also discussed their RFID efforts.

Tesco has been testing the tags with high-value and frequently stolen merchandise from 30 distribution centers to 1,400 of its stores, said Colin Cobain, a Tesco executive.

Cartons of products are shrink-wrapped, and the tags are read at three points in the distribution centers and again once they reach the stores. The tags can help store employees find products that have a stocking priority and get them on the sales floor quickly.

“This is enabling us to deliver change,” Cobain said. “It enables staff to spend more time with customers. They don’t have to spend time looking for something that isn’t there.”

Metro Group, in a live satellite feed, demonstrated how the technology can be used from the distribution center to a fitting room in a clothing store. The fitting rooms were outfitted with what are called hang-tag wizards, a flat-screen computer with an RFID tag reader that automatically scans all the items a shopper brings in to try on.

If the shopper gets the wrong size, she or he can follow instructions on the screen to learn if the store has the right size. By touching the screen, a shopper can communicate to a store employee, who will bring the right size.

The screen also can suggest other items in the store that would go with the garment being tried. At checkout, employees can simply lay the garments on the counter and they all scan in simultaneously.

The employee then removes the RFID tags from the garments, to alleviate privacy concerns.

“This is certainly a major improvement for the future,” said Zygmunt Mierdorf, chief information officer at Metro Group.

Most retailers are still deciding if they want to invest in the technology. The tags now cost about 40 cents each, making it a tough cost to justify in retail businesses with low margins.