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Wal-Mart tagging fuels RFID market

Mega-chain's demand that suppliers use radio tags will help double sales, analyst report predicts.

Wal-Mart Stores' top merchandise suppliers are lifting sales of radio frequency identification devices as they race to comply with a January deadline from the world's largest retailer.

Major consumer goods companies--including Gillette, Kraft Foods and Procter & Gamble--have collectively spent about $250 million on RFID tags and related equipment this year, according to a new report from AMR Research. Those companies are among the nearly 140 Wal-Mart suppliers working toward fulfilling the retailer's RFID directive.

Issued last year, the directive calls for Wal-Mart's largest suppliers to attach RFID tracking "tags" on shipments sent to several Dallas-area Wal-Mart warehouses and stores, beginning next month. The tags, which contain special microchips, are designed to automatically relay detailed information about the contents of a package or container to computers. The technology is expected to reduce much of the manual labor and human error involved in tracking inventory via bar codes.

"Wal-Mart is single-handedly responsible for moving this industry along," said Kara Romanow, the AMR analyst who wrote the new study.

Romanow noted that several other major retailers, including Albertsons, Best Buy, Target and Britain's Tesco, are also launching RFID projects with their merchandise suppliers. The U.S. Department of Defense and the Food and Drug Administration are encouraging companies to deploy the technology, too.

But Wal-Mart appears to be leading the way. The company's project may more than double the U.S. retail industry's spending on RFID equipment this year. A forecast from research firm IDC estimates that U.S. retailers and their suppliers spent just $90 million or so last year on RFID technology.

The main beneficiaries of the RFID shopping spree are hardware suppliers, including Intermec Technologies, Matrics (a division of Symbol Technologies) and Alien Technology, Romanow said. Consultants and software companies, including Hewlett-Packard, IBM, Microsoft, Sun Microsystems and SAP, are also looking for a slice of the action.

Yet this year's outlays will be just "a drop in the bucket" compared with likely future spending, given that other retailers are ramping up their deployments and Wal-Mart is expanding the scope of its initiative, Romanow said. Wal-Mart is said to be budgeting about $3 billion for RFID over the next several years.

In addition, it will cost merchandise suppliers about 10 times what they've already spent to get the full benefit of the technology, Romanow said.

"They decided to do the bare minimum to get compliant," she said. "So there's a huge opportunity for creating more business impact and a lot more spending."