Issue #154 | July 18, 2008 | by Michael Dortch


After more than 30 years as an IT industry analyst, commentator, and observer, I’ve finally realized that no one really gives a fig what I think about anything related to IT. The only real reason people care about what I say or think is that they trust that my opinions are based on my analysis of what users care about, do, and say.

After surveying more than 150 companies in the retail industry, my analysis of the results — and what I heard from retailers I interviewed — indicates there are some negative perceptions they hold about cost and maturity of RFID technology.

Old information may well be the reason for these negative perceptions.

That is to say, some retailers may have last dipped their toes into RFID’s waters a few years ago, found the technologies lacking, and were not motivated to try again. They may not know how far hardware costs have fallen; how much reader accuracy has improved; or about the business benefits other retailers around the world are enjoying thanks to their RFID investments.

The retail industry appears to be a fascinating microcosm of how RFID deployments and adoption are evolving. There is an almost Dickensian dichotomy surrounding RFID in retail – in a lot of ways, RFID is experiencing both the best of times and the worst of times, at the same time.

In terms of the “best of times,” Aberdeen applied its standard survey analysis and weighting process to divide respondents into three groups – Best-in-Class (the top 20%, based on Aberdeen-defined performance criteria), Industry Average (the middle 50%), and Laggard (the bottom 30%).

For this study, three performance criteria were used – customer satisfaction, employee productivity, and inventory turns.

Based on these indicators, Best-in-Class retailers enjoyed the following performance improvements:

• Customer satisfaction has increased over the past two years by an average of 12%
• 94% have improved employee productivity
• 78% have increased inventory turns by an average of 5.4%
• Further, we found that companies enjoying Best-in-Class performance shared several common characteristics:
• Best-in-Class retailers are 80% more likely than all others to use RFID to improve in-store asset tracking efficiency
• Best-in-Class retailers are nearly 11 times as likely as Laggards to enable customers to access current inventory levels and detailed product descriptions
• Best-in-Class retailers are 80% more likely than Industry Average and are 3.6 times more likely than Laggard companies to have adaptable organizational cultures that embrace innovation

“Best of times,” indeed. But in the same survey, we found that despite the high level of interest in RFID among retailers, resistance to adoption can still be high. To try to understand why, Aberdeen asked retailers not pursuing any RFID initiatives to indicate what they perceived to be the top barriers to RFID adoption.

The top challenge, cited by 53% of respondents, is the perception that the technology has not matured to a point where ROI is proven. This despite high-profile industry mandates and successes among early adopters. (See last week’s The Last RFID Pilot)

After maturity, 36% of retail respondents say that the additional hardware required for RFID is too expensive. To date, the cost of tags and readers has been a constant source of debate. Also, RFID has been piloted widely, but those pilots resulted in few enterprise-wide roll-outs. Both of these situations are changing, and rapidly. Nonetheless, it’s pretty easy to understand why risk-averse retailers operating on razor-thin margins would have such “worst of times” perceptions of RFID.

Ultimately, what seems most likely to convince skeptical retailers to try or revisit RFID is the growing chorus of other retailers, including those Best-in-Class Aberdeen survey respondents, detailing their positive experiences. After all, a June 2007 Aberdeen study found that Best-in-Class companies relied primarily upon peers (69% of respondents) and vendors (24%) as their top solution selection resources.

Users should expect more and more of those stories of positive experiences to focus on using RFID to increase customer satisfaction, and using that increased satisfaction to increase revenues.

But as I said at the beginning, it’s not just about what I think. Here’s how one retailer succeeding with RFID, IT Director Jan Vink of Netherlands bookseller BGN, sees it. "We can gain additional revenue if books can be accurately located. RFID improves customer service and the supply chain in that we do not need to spend time checking the accuracy of daily shipments and correcting errors.

“We are also using RFID to learn how we can improve customer service and our processes without extra hands, Vink continued. “The power is with the customer in terms of determining the speed of innovation. If you cannot keep up, you are going to fade out."

The full study can be found at “RFID in Retail: The Truth Behind the Hype.”

Michael Dortch is a Senior Analyst at Aberdeen Group Aberdeen Group: Technology Answers for the Global Value Chain, a Harte-Hanks company (NYSE:HHS), where he focuses on enabling technologies and information management. michael.dortch@aberdeen.com