Retail Spending on RFID Seen Rising in "Fits and Spurts"

Compliance driving near-term spending as market for radio frequency identification technology set to surpass $1 billion by 2007, IDC predicts

Compliance driving near-term spending as market for radio frequency identification technology set to surpass $1 billion by 2007, IDC predicts

Framingham, MA — January 8, 2004 — Spending on radio frequency identification (RFID) technology for the U.S. retail supply chain will rise in fits and spurts as manufacturers and distributors first race to comply with various customer mandates, only to take a breather before a subsequent surge in spending on the next generation of this technology, according to new projections from technology research firm IDC.

The coming year will be crucial for RFID technology as mandates from Wal-Mart and the Department of Defense (DoD) bring RFID closer to the real world, IDC reported in its study "U.S. RFID for the Retail Supply Chain Spending Forecast and Analysis, 2003-2008."

With manufacturers and distributors scrambling to meet the requirements of these mandates, IDC predicted that RFID spending for the U.S. retail supply chain will grow from $91.5 million in 2003 to nearly $1.3 billion in 2008. However, once initial deployments are completed, RFID spending will level off as the industry prepares itself for the next wave of RFID, item-level tagging.

"RFID will be deployed in fits and bursts as manufacturers and retailers move along the learning curve and as tag and reader costs come down over the next several years," said Christopher Boone, program manager for U.S. vertical industry research at IDC. "Although many suppliers and distributors are currently unfamiliar with RFID technology, they will soon need to comply at some level with customer demands for RFID tagging of cases and pallets."

Boone added that changes to business processes to take advantage of data from RFID tags should determine which enterprise applications will need to be modified and ultimately how the RFID layer should be designed and deployed. "Today, the RFID layer is driving the business decisions, and this is backwards," the analyst warned.

IDC sees hardware purchases dominating RFID spending over its forecast period, reaching $875 million in 2007. Most of this spending will occur among manufacturers and their distribution partners, who will bear the burden of purchasing RFID tags on top of the necessary infrastructure and systems integration.

RFID-related services will grow quickly at first, approaching $270 million in 2007, but growth will slow after 2005, IDC believes. Meanwhile, software spending will accelerate in the second half of the forecast period as the need for RFID middleware expands to more and more companies.

The IDC study presented IDC's forecast for spending on RFID for the retail supply chain in the United States from 2002 through 2008, and it discusses the current events that are spurring RFID adoption, presents the forecast for RFID hardware, software and services, and offers analysis for adoption of RFID across the retail supply chain.

For more information on trends relating to RFID, see the following articles:

For more information on RFID projects underway today, see the articles on initiatives at Benetton (April 9, 2003) and Gillette (January 8, 2003).

For more information on the use of RFID solutions in the supply chain, see "Needle in a Supply Chain Haystack," the Net Best Thing column in the January 2002 issue of iSource Business (now Supply & Demand Chain Executive) magazine.