VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

Why We Are Updating Our EPC Tag Numbers

As part of our ongoing research into the RFID communities, we have noted a delay in several high profile retailers’ deployment plans. 

These delays have caused us to revise our estimates and forecasts for the EPC UHF market downward in 2011 as well as adjust the growth rates in 2012 and 2013.  These changes were limited primarily to transponders in the retail sector.  Passive EPC applications outside of retail remain on par with our earlier expectations.   We strongly feel that these delays should be considered a temporary ‘bump in the road’. 

Reasons behind the revisions include:

• Wal-Mart’s deployment for women’s apparel has been delayed by approximately 2 quarters, shifting this demand toward Q4/Q1 2012.  Reasons for the delay pertain to ensuring that the supply chain has adequate support, time and resources for a success deployment.  It appears Wal-Mart does not want to repeat the previous issues/challenges they encountered when implementing RFID in their supply chain.
• Macy’s piloting has been slower than expected due to technical and process related issues and challenges.  Scaling is now expected to occur in Q2 2012
• American Apparel, which filed for bankruptcy last quarter, appears to remain flat (in tag consumption) despite announcements of installing RFID solutions in more stores.  This is most likely attributed to a focus on internal restructuring as a result of their bankruptcy.
• Several other Tier I and II retailers have also indicated they are delaying deployments by 2-3 quarters, stating that more time is needed to prepare their supply chain, further develop processes and refine what and how the data will be used, leveraged, distributed and protected.
• The conversion of the Marks & Spencer passive UHF tag to EPC Gen2 has been significantly delayed due to infrastructure-related issues pertaining to compatibility with their proprietary and EPC protocols.  Full conversion was expected to begin in 2010 – it’s now expected to start this year.

These factors correlate to a 51% reduction in expected tag volumes in 2011 to 2.1 billion units and about a 10% reduction (to 40 billion units) by 2015. 

EPC reader and printer estimates and forecasts were not significantly impacted by these revisions.

Although the near-term estimates and forecasts for EPC transponders in retail have changed significantly, we do not consider these updates a representation of decreased interest or commitment in EPC solutions.  Retail has experienced a delay, but there is no indication from any retailer that they are pulling back from RFID and there is a tremendous amount of activity occurring outside of retail.  Examples include:

In Retail:

• Although Wal-Mart is delaying their women’s apparel deployment, their plans to tag more SKUs and product types are on track and the company does not expect to encounter similar supply chain issues (as with women’s apparel).
• There are more retailers committing to deploying RFID than those experiencing delays.  For example, JC Penney, Gerry Webber, Hudson Bay and Liverpool are all increasing their investments in RFID and tagging more products. 
• There are numerous other Tier I and II retailers (we are bound by NDAs) that are scaling pilots in the U.S. and Eastern Europe – they are just ‘flying under the radar’ as a means to protect an increasing competitive advantage.

Outside Retail

• Several very large, high tag volume EPC projects that are wrapping up their piloting phases in China and are expected to scale over the next few years, including applications pertaining to supply chain and authentication of tobacco and liquor, as well as courier and transportation applications.
• Korea continues to show significant gains in a diversity of applications, such as pharmaceuticals (mandated by the government), authentication and location-based services.  The country is expected to consume more than 350 million tags in 2011 for pharmaceuticals alone.
• High volume Automatic Vehicle Identification (AVI) and Electronic Vehicle Registration (EVR) applications are blossoming, with new high-volume, government driven (and funded) installations expected in the APAC, Latin-American and European markets.  These deployments are substantial and can represent tens-of-millions of tag consumption for the initial phase with high volume recurring demand for new issues and replacements.
• Postal and courier applications continue to scale in Europe and there is increasing demand for these solutions in APAC (i.e.: China Post, Saudi Post)
• Approximately 5 more airports are expected to adopt RFID baggage handling and asset tracking solutions, primarily in Europe and APAC.  Although the tag volumes for this application have been lagging expectations, they are continually increasing and each airport can consume tens-of-millions of tags annually.

The following chart provides our updated thinking on the EPC hardware market:

 

EAS Gets a Boost from RFID

Checkpoint Systems recently introduced its Overhead RFID EAS system, a packaged solution that combines EAS with RFID.

Checkpoint, a market leader in loss prevention solutions for retail, just introduced its first EAS/RFID system.  The solution, which includes a low-profile, concealable overhead reader, satellite antennas, software and an alarm box, is targeted at most retail installations, particularly image-conscious fashion/clothing retailers who desire an unobtrusive and smart EAS solution.  

The new system leverages Checkpoint’s Wirama reader, the first reader fully manufactured by the company and a result of its 2009 acquisition of Wirama.  It is further differentiated by its use of hard tags, as opposed to consumable hang tags. Hard tags—which account for the vast majority of item-level tags in retail—were chosen to increase security (hang tags are relatively easy to remove) and to maintain consistency with current EAS form factors used in apparel. 

The performance of this solution still has some limitations (for example, no add-ons for metal detection to combat foil bags), however, the value it offers is significant and is expected to simplify cost-justification.  This system offers EAS that performs similarly to traditional solutions, but is enhanced with RFID capabilities. As a result, instead of simply alerting associates that an item is leaving the store without authorization, the Checkpoint solution is capable of identifying what specific item(s) were taken and directing that information to ensure the most appropriate and timely response. Furthermore, the system is capable of identifying potentially suspicious merchandise movement, enabling associates to take preemptive measures.

Specifications are provided on the Checkpoint website (http://www.checkpointsystems.com/) – look into the location, merchandise direction and inventory control capabilities to see further differentiation points and value add capabilities.

The press release for this product can be downloaded on the Checkpoint website or by clicking the following link: press release.

Global Adoption of Self-Checkout Solutions

Self-Checkout suppliers realized over $524 million in revenue during calendar year 2010, with the market expected to grow at a CAGR of 12.9% over the next five years.

Regional adoption of this self-service technology was fairly inconsistent in 2010, however, as the value derived from solution installation varied significantly across the Americas, EMEA and APAC.

1. Hardware vendors benefited greatly from self-checkout deployments with their existing client base in North America and Europe (resulting from ongoing refresh cycles or new store openings) as retailers continued to experience returns that justified continued investment in these solutions.

2. Adoption in APAC and other emerging country markets in Latin America has, however, been relatively stunted especially as low labor costs in these regions negates the primary value proposition offered by these expensive self-checkout solutions.

Suppliers are working towards driving investment in historically untapped regions and retail market segments by innovating across a variety of fronts:

- Reducing the footprint of these solutions to enable retailers to accommodate multiple self-checkout lanes in place of their conventional, assisted-service counterparts. This helps maximize use of retail floor space and expedite customer throughput while also resulting in significant labor savings.

- Focusing on the entire self-checkout process (as opposed to the technology hardware alone) and breaking it down into distinct modules – Scanning, Bagging and Payment. Modularity is a raging theme across this space.

- Suppliers are working with retailers to determine the ROI associated with deploying Cash Recycling modules at the self-checkout lane. Automating the cash handling process provides higher level of cash transparency to retailers while also significantly enhancing security and lowering shrinkage.

Learn more about VDC’s coverage of the Self-Checkout Solutions market here.