The End of the Road for Bar Codes

Chip-embedded radio tags could revolutionize retailing

Prada's flagship store in New York is more than a stylish showcase for clothing and architecture. In March, Prada began fitting its fashions with "smart tags" that help salespeople with handheld computers track inventory and show product details to customers on nearby monitors. "It's an experience that melts into the architecture of the store itself," says Miuccia Prada, co-chief executive of Prada.

After years of hype about the revolutionary cost-cutting potential of smart tags, the future may be at hand. Although radio-frequency identification, or RFID, has been used for years to track high-value goods such as car subassemblies in a factory or electronic components in a warehouse, only recently has the technology become cheap enough to deploy in high-volume retail environments. As costs come down, "RFID technology is opening up to new applications like [mobile] commerce, baggage tracking, and in-store uses," says Deepak Shetty, an analyst at Frost & Sullivan. With RFID moving out of factories and warehouses and into retail, commercial, and health-care businesses, the market is set to expand by 16% to $1.4 billion this year, he predicts.

Some uses for RFID

What makes RFID so hot in an otherwise tepid technology market? Compared with bar codes--the 30-year-old industry standard for product identification--RFID systems require less manipulation by humans even as they hold more useful data. Whether powered by a battery or an external signal, all RFID devices contain a computer chip able to store hundreds of characters of data (vs. just 12 or 15 characters for a bar code) plus a tiny antenna that communicates with a receiver.

Smart tags are just one RFID application. In 400 of its Chicago-area restaurants, McDonald's Corp. (MCD ) is testing a chip-based checkout system that lets customers pay for a burger with digital cash. Once the purchase is rung up, McDonald's RFID terminal collects payment information, in a matter of seconds, straight from a chip in a customer's key fob.

It's the smart-tag applications, however, that have really captured retailers' attention. In stores, RFID enables salespeople to locate and read tags at a distance--a big advantage over bar code systems, which require line-of-sight between the reader and the colored stripes. In warehouse settings, RFID systems can inventory an entire building full of goods with minimal human supervision.

In March, Marks & Spencer (MAKSY ), one of Britain's largest retailers, began replacing bar codes with an RFID system in its $4.4 billion fresh-food business. The company is putting radio tags on all of the 3.5 million plastic containers it uses to tote food from suppliers to stores. Before, suppliers had to print bar-coded labels for each of the 7 million bins M&S handles every week. Now, each time one of M&S's 340 suppliers packs one of these bins, the system encodes shipment data--including product codes, quantities, and expiration dates--onto RFID tags embedded in the carton. About 50 plastic containers can be read at once, slashing the average time required to scan each one by 83%, to five seconds from 29. Thanks to increased handling efficiencies, less spoiled food, and fewer lost shipments, M&S expects to recoup its $3 million smart tag investment in three years.

RFIDs haven't made it onto the lowest-value goods, such as individual grocery items. While the cost of printing bar codes ranges from 1 cents to 10 cents, RFID tags from companies such as Texas Instruments (TXN ), TransCore, and Siemens (SI ) range from 30 cents for a simple tag to a few dollars for high-end devices such as McDonald's key fobs, made for Exxon Mobil Corp. (XOM )

To bring the cost down, Massachusetts Institute of Technology is heading an ambitious project called the Auto-ID Center, backed by 52 companies including Procter & Gamble (PG ), Coca-Cola (KO ), and Wal-Mart (WMT ). The plan is to develop a common language of electronic product codes to identify billions of items, and to slash the cost of RFID tags to 5 cents by 2005--cheap enough to embed a tag in each can of Coke. At that price, says Kevin Ashton, the center's executive director, "there's no doubt that the technology will play out very quickly."

By Heather Green in New York

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