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:
- 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.
- 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: