THE WALL STREET JOURNAL
Updated July 23, 2010 12:01 a.m. ET
Wal-Mart Stores Inc. plans to roll
out sophisticated electronic ID tags to track individual pairs of jeans
and underwear, the first step in a system that advocates say better
controls inventory but some critics say raises privacy concerns.
Starting
next month, the retailer will place removable "smart tags" on
individual garments that can be read by a hand-held scanner. Wal-Mart
workers will be able to quickly learn, for instance, which size of
Wrangler jeans is missing, with the aim of ensuring shelves are
optimally stocked and inventory tightly watched. If successful, the
radio-frequency ID tags will be rolled out on other products at
Wal-Mart's more than 3,750 U.S. stores.
"This ability to wave the wand and
have a sense of all the products that are on the floor or in the back
room in seconds is something that we feel can really transform our
business," said
Raul Vazquez,
the executive in charge of Wal-Mart stores in the western U.S.
Before
now, retailers including Wal-Mart have primarily used RFID tags, which
store unique numerical identification codes that can be scanned from a
distance, to track pallets of merchandise traveling through their supply
chains.
Wal-Mart's broad adoption
would be the largest in the world, and proponents predict it would lead
other retailers to start using the electronic product codes, which
remain costly. Wal-Mart has climbed to the top of the retailing world by
continuously squeezing costs out of its operations and then passing on
the savings to shoppers at the checkout counter. Its methods are widely
adopted by its suppliers and in turn become standard practice at other
retail chains.
But the company's latest attempt to
use its influence—executives call it the start of a "next-generation
Wal-Mart"—has privacy advocates raising questions.
While
the tags can be removed from clothing and packages, they can't be
turned off, and they are trackable. Some privacy advocates hypothesize
that unscrupulous marketers or criminals will be able to drive by
consumers' homes and scan their garbage to discover what they have
recently bought.
They also worry that
retailers will be able to scan customers who carry new types of personal
ID cards as they walk through a store, without their knowledge. Several
states, including Washington and New York, have begun issuing enhanced
driver's licenses that contain radio- frequency tags with unique ID
numbers, to make border crossings easier for frequent travelers. Some
privacy advocates contend that retailers could theoretically scan people
with such licenses as they make purchases, combine the info with their
credit card data, and then know the person's identity the next time they
stepped into the store.
"There are two things you really
don't want to tag, clothing and identity documents, and ironically
that's where we are seeing adoption," said
Katherine Albrecht,
founder of a group called Consumers Against Supermarket Privacy
Invasion and Numbering and author of a book called "Spychips" that
argues against RFID technology. "The inventory guys may be in the dark
about this, but there are a lot of corporate marketers who are
interested in tracking people as they walk sales floors."
Smart-tag
experts dismiss Big Brother concerns as breathless conjecture, but
activists have pressured companies. Ms. Albrecht and others launched a
boycott of Benetton Group SpA last decade after an RFID maker announced
it was planning to supply the company with 15 million RFID chips.
Benetton later clarified that it was just evaluating the technology and never embedded a single sensor in clothing.
Wal-Mart
is demanding that suppliers add the tags to removable labels or
packaging instead of embedding them in clothes, to minimize fears that
they could be used to track people's movements. It also is posting signs
informing customers about the tags.
"Concerns
about privacy are valid, but in this instance, the benefits far
outweigh any concerns," says
Sanjay Sarma,
a professor at the Massachusetts Institute of Technology. "The
tags don't have any personal information. They are essentially barcodes
with serial numbers attached. And you can easily remove them."
In
Europe some retailers put the smart labels on hang tags, which are then
removed at checkout. That still provides the inventory-control benefit
of RFID, but it takes away other important potential uses that retailers
and suppliers like, such as being able to track the item all the way
back to the point of manufacture in case of a recall, or making sure it
isn't counterfeit.
Wal-Mart won't say
how much it expects to benefit from the endeavor. But a similar pilot
program at American Apparel Inc. in 2007 found that stores with the
technology saw sales rise 14.3% compared to stores without the
technology, according to Avery Dennison Corp., a maker of RFID
equipment.
And while the tags wouldn't
replace bulkier shoplifting sensors, Wal-Mart expects they'll cut down
on employee theft because it will be easier to see if something's gone
missing from the back room.
Several
other U.S. retailers, including J.C. Penney and Bloomingdale's, have
begun experimenting with smart ID tags on clothing to better ensure
shelves remain stocked with sizes and colors customers want, and
numerous European retailers, notably Germany's
Metro AG
, have already embraced the technology.
Robert Carpenter,
chief executive of GS1 U.S., a nonprofit group that helped
develop universal product-code standards four decades ago and is now
doing the same for electronic product codes, said the sensors have
dropped to as little as seven to 10 cents from 50 cents just a few years
ago. He predicts that Wal-Mart's "tipping point" will drive prices
lower.
"There are definitely costs. Some labels had to be modified," said
Mark Gatehouse,
director of replenishment for Wrangler jeans maker
VF Corp.
VFC +0.39%
, adding that while Wal-Mart is subsidizing the costs of the
actual sensors, suppliers have had to invest in new equipment. "But we
view this as an investment in where things are going. Everyone is
watching closely because no one wants to be at a competitive
disadvantage, and this could really lift sales."
Wal-Mart
won't disclose what it's spending on the effort, but it confirms that
it is subsidizing some of the costs for suppliers.
Proponents,
meanwhile, have high hopes for expanded use in the future. Beyond
more-efficient recalls and loss prevention, RFID tags could get rid of
checkout lines.
"We are going to see
contactless checkouts with mobile phones or kiosks, and we will see new
ways to interact, such as being able to find out whether other sizes and
colors are available while trying something on in a dressing room,"
said
Bill Hardgrave,
head of the RFID Research Center at the University of Arkansas,
which is funded in part by Wal-Mart. "That is where the magic is going
to happen. But that's all years away."
