How Applicable Are the

By Evan Schuman  |  Posted 2004-12-22 Print this article Print

Wal-Mart Results?"> Another analyst report issued this week cautioned the industry from reading too many positive things about RFID from Wal-Marts highly publicized trial, even as the latest details from that trial suggest its going better than feared. First of all, the 137 participating suppliers in the Wal-Mart effort are investing at such an unrealistically low level—just enough to scrape by for the Wal-Mart trial—that its reckless to project cost and return from those results, said a strongly worded statement from AMR Research, which estimated that the suppliers collectively spent about $250 million and that—"for strategic impact"—they needed to spend $1.8 billion."There were too many hurdles to overcome in too short a period," said Kara Romanow, research director at AMR Research. "Many of Wal-Marts suppliers are more convinced than ever that there is no ROI and, even worse, consider their technology investments to be a throwaway thus far. Because of this, theyve only spent the bare minimum needed to comply."
Will wireless rewrite the RFID landscape? To find out, click here. In an interview, Romanow stressed that she did not mean to suggest the suppliers had done anything wrong, nor that she would have even counseled them—under these circumstances—to have done anything differently."Theyre spending exactly what they should be spending," Romanow said. "They would be foolish to spend any more."Her point was simply that the industry should be cautious about what conclusions it draws.AMRs Romanow said RFID prices are still too high and, perhaps more to the point, are significantly higher than the industry had projected they would be by late December 2004."While prices are slightly lower than last year and will continue to decrease as bigger vendors enter the space, the 25-cent per tag on average is still too high to support large-scale, pervasive implementations," Romanow wrote. "Manufacturers are shouldering the burden of tag costs without any concessions from retailers, which is often compounded by the requirement for specialty tags that address physics difficulties, albeit at an even higher tag cost."That all contributes to the biggest obstacle to RFID: a much weaker ROI argument for suppliers. Nowhere is this more true than for manufacturers of low-priced goods. Full-scale RFID could take a decade. To read more, click here. "It took a while for companies to admit it, but for manufacturers of low-cost consumer products like toilet paper, toothpaste and most food products, implementing RFID technology provides little to no defendable ROI—even with tag prices significantly lower than they are today," Romanow said. "In our conversations with many of these consumer products suppliers, none will admit to any value beyond complying with the requests of their largest customer. There is, however, a strong business case for retailers and manufacturers of high-value goods like consumer electronics, DVDs, pharmaceuticals, high-end apparel, or sporting goods."Although not addressing the long-term ROI issues, Forresters Overby did concede that the returns are—at best—significantly delayed. "Theres no questions that the benefits are backloaded and the costs are front-loaded," she said. Next Page: The RFID interoperability nightmare.

Evan Schuman is the editor of's Retail industry center. He has covered retail technology issues since 1988 for Ziff-Davis, CMP Media, IDG, Penton, Lebhar-Friedman, VNU, BusinessWeek, Business 2.0 and United Press International, among others. He can be reached by e-mail at

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