For Many Retailers, RFID Lacks ROI

Wal-Mart and other retailers have been pushing RFID for several years. Now, a new AMR Research report I got an exclusive sneal peak at says that broad RFID deployments make no financial sense.
Olga Kharif

Wal-Mart and other retailers that have pushed Radio-Frequency Identification in recent years might be bitterly disappointed by the results, according to a new AMR Research study I got an exclusive, early sneak peak at.

AMR researchers modeled a company-wide roll-out of RFID, used to track cases and pallets of goods throughout the supply chain, at a hypothetical, $5 billion retailer. What they found: In the best-case scenario, RFID investments pay off in nine to 10 years. That's an awfully long time to wait.

Does this mean that RFID is a waste of money? No; it simply means that using RFID to track all goods moving through the supply chain is, says Scott Langdoc, vice president of retail research at AMR. Going forward, "we won't see holistic projects, but rather more focused projects," he predicts.

Essentially, Langdoc believes that RFID only makes financial sense when used for tracking certain individual items, such as DVDs. Expand your deployment to track everything from paper towels to canned soup, and watch your Return on Investment (ROI) time lengthen into the new millenium.

Sure, those numbers will change as RFID tags and equipment get cheaper, particularly as next-generation RFID gear comes out later this year.

Yet, I think the AMR conclusions won't get old any time soon, as the prices on tags and the gear won't fall that fast, perhaps only by some 15% to 20% a year.

What does that mean? That means that RFID's deployment won't be as broad as anticipated. It will be highly focused. RFID won't make it into every store. It won't make sense in every store.

Before it's here, it's on the Bloomberg Terminal.