RFID tests hold promise

Retailers waiting for cost to lower before wide scale use

By Jennifer Netherby -- Video Business, 5/5/2006

MAY 5 | Radio frequency identification tags that promise to allow retailers to track inventory anywhere anytime is still five to 10 years or more away from wide scale use, retailers say, but that isn’t stopping stores from testing their potential and monitoring the possibilities from reduced labor costs to theft prevention.

RFID tags use radio waves to monitor where products are in the supply chain in real time, which has the potential to substantially improve inventory management, reduce labor costs and out-of-stock situations and even deter theft.

Wal-Mart has been a key driver of the technology, requiring its Top 300 suppliers to tag cases and pallets so the company can monitor products as they move through the retailer’s distribution system to stores. The company didn’t return a call about how DVD fits into its RFID strategy.

Movie Gallery, Best Buy and other retailers also are testing the technology, but most retailers are still waiting for costs to drop low enough to make it economically feasible to switch from bar codes to RFID.

Meanwhile, the Video Software Dealers Assn. operations committee has been closely watching RFID developments as more retailers take interest, said Mark Fisher, VSDA VP of membership and strategic.

DVD kiosk maker DVDXpress is already using RFID technology to track rentals and returns of movies. East Coast grocer Bi-Lo is rolling out DVDXpress kiosks to its 275 stores after a successful pilot test last summer, said Steve Methvin, director of store systems.

Methvin said the company stumbled into the RFID technology when it was testing different kiosk providers, most of which use bar code technology to track discs.

DVDXpress places donut-shaped stickers with an RFID antenna on the center circle of discs. A scanner in the kiosk allows it to track which movies are rented and when they are returned, though discs aren’t tracked after they leave the grocery store.

RFID “has been a real good success for us,” Methvin said. “On a wide scale basis, there’s still work to be done. In a kiosk strategy, it’s ready to be used today.”

No. 2 video rental chain Movie Gallery began testing RFID tags to track rental inventory in 2000 and continues to monitor RFID in two stores in the chain, said Richard Langford, senior VP and chief information officer.

In the first phase of testing, Movie Gallery tagged its rental inventory in test stores and placed RFID readers on the movie drop box. The scanners were able to read and record every movie that was returned in the drop box, cutting down the time it takes to check in inventory.

Gallery also tested whether the tags would help reduce the amount of rental inventory that is on shelves but marked as checked out. The RFID tags didn’t make a difference there because the company found that customers were sneaking late movies back on shelves and telling clerks that they had checked them in days earlier to avoid late fees.

In its second testing phase, Gallery used the RFID system to do a physical inventory check and found it provided significant labor savings.

Whereas, it can generally take three to four store employees eight to 10 hours to do a check of the physical inventory in a typical Gallery store, in stores with RFID tags, it took one employee two hours, showing that the tags could add up to significant savings on labor costs.

Still, because RFID tags are pricy, it isn’t yet cost-efficient to roll out the technology to all stores. When Gallery began testing in 2000, RFID tags were $1 each; the price has since dropped to 20¢ a tag, Langford said. Like others, Gallery is waiting for the price to drop below a nickel, and when it does, the company is ready to launch RFID throughout its store base.

“It is a cool technology, there’s no doubt, but until it can save you money, that’s all it is,” Langford said.

While retailers test RFID’s ability to make the supply chain more efficient, another company is at work on RFID technology that could be used to deter theft of DVDs, CDs and consumer electronics such as plasma TVs.

Kestrel Wireless, a company founded three years ago by former DVD replication and studio executives, has developed RFID technology to be embedded in discs that can prevent DVD playback until the item is scanned at checkout. Packaging on the disc would indicate that the DVDs won’t play unless purchased.

“The concept is thieves aren’t going to steal discs that aren’t going to play,” senior VP of business development Frank LoVerme said.

Dubbed RF Activation, the technology embeds in the disc a microscopic chip, an antenna and a small film layer that prevents the laser from reading the startup file on a DVD or CD without network authentication.

When the DVD is purchased, the RF scanner at checkout sends information to a remote network activation center, which sends a message back to the scanner allowing the DVD chip to change the clarity of the film layer so the startup file can be read and the DVD plays. It all happens in less than half a second.

Kestrel plans to launch a pilot test with DVD retailers in early 2007.

The company is trying to get the cost to make a DVD with an embedded chip equal to what it now costs to make a DVD, because with an embedded chip the company claims manufacturers wouldn’t need to include EAS tags or security stickers and could switch to cheaper packaging because theft wouldn’t be a concern.

The company is targeting mass merchants, grocers and convenience stores with its technology, as theft is heavy at those types of retailers, keeping some out of the DVD business altogether.