RFID: The Economic Landscape

Reik Read,
Senior Analyst
Robert W. Baird & Co.

RFID Connections spoke with Reik Read, senior analyst for Robert W. Baird & Co., about RFID and the economy.

His views can be heard by clicking on the podcast link. So if you dont have time to read the interview now, download it onto your iPod/MP3 player and listen in on your way home.

RFID Connections: Given the weak economy in 2009, how did RFID fare compared to the overall picture? And, specifically, were there any particular applications or technologies that were less affected or more affected?

Reik Read: I think that when you look at the broader auto ID space with respect to the economy, it was pretty coincident. We really started to see things deteriorate at the end of 2007. We saw the big move down in 2008 and as 2009 started things were very, very weak and you've seen that in general with very weak hardware purchases in the first part of the year.

I think as we've gotten into this second part of the year you've seen some improvement amongst the resellers who are thinking of being able to do more projects. They're seeing fewer delays; they're seeing more supplies business kick in; and I think when you go back in past recessions these are all indicators that things are getting better.

When I look at RFID relative to that, I think RFID in the first part of the year was just as weak as everything else. As you got into the May-June-July timeframe, things started to get a lot better and I think where RFID maybe fared relatively better was 1) it's very small but 2) people in this type of an environment are looking for new ways in which they can improve and I think the level of pilot activity simply got better and better. So I think you've seen more in the way of Gen2 capability; you've certainly seen more in the way of near-field communication [NFC], particularly in access control; you've seen tolling on the active side as well as health care do reasonably well.

I think the areas that were more negatively affected were some of the active technologies where you have a relatively high cost going into industries that were particularly troubled -- so think of auto and marine.

But, overall, I think RFID actually had a good year in terms of people learning more about the technology and more things happening. We're just still waiting for that real break-out.

RFID Connections: Do you see the performance of RFID towards the second half of the year as an economic trend or is this more of an indication of particular companies trying to address specific business issues?

Reik Read: I think that's a great question; I think it's really more the latter. People understand that things have been weak; they understand that things may continue to be weak in a number of industries for the foreseeable future. I think the good news is that it looks as though capital budgets, as we get into 2010 for "tax spend" will actually be a little bit better; a little bit of that is still to be determined but I think that incremental dollars will find their way into projects where RFID has some presence simply because people are trying to figure out ways in which they can manage their inventory more effectively, manage their asset bases more effectively and maybe, in certain instances, enhance revenue. I think RFID is being looked at as a tool for those types of items and therefore is seeing some traction.

RFID Connections: You mentioned a lot of activity with pilot programs in 2009. Do you see those becoming full-scale implementations as we move into 2010 or do you think that there will just be more pilot programs and only a few full-scale implementations?

Reik Read: I still am more of the view that we're going to see more pilot activity rather than bigger implementation but I think the pilot activity is becoming more pronounced. More people are doing pilots and I think the volume related to these pilots is taking off. What I am probably most encouraged about is that, in a number of different pilots, you're actually starting to see some reasonably good data come out both in terms of productivity enhancements -- whether it's fewer labor hours or less inventory or things of that nature -- but you're also seeing in some cases particularly in the apparel pilot revenue enhancement where people are actually getting sales lift as a result of avoiding out-of-stocks. That's the kind of thing that executive management takes a look at and says, "Gee, we should be doing more."

RFID Connections: Are you suggesting that some of the data that's coming out of these pilot projects is actually making it easier to identify an ROI for these types of applications?

Reik Read: I think so. I think that people are still pretty hesitant to want to share that publically but there have been a few instances where people have put some data out, specifically the American Apparel pilots that are going on and they share that they're seeing a nice reduction in hours; they're seeing a 14 percent revenue lift in those stores that have that capability.

There are a few others out there that are suggesting that they are seeing a very good ROI although they're not sharing the data.

The point of your question is, are people actually able to point to an ROI and I think, increasingly, the case is "yes".

RFID Connections: That sounds very encouraging. What do you see as the key issues that need to be addressed to see more of these projects move forward in 2010?

Reik Read: I think the biggest factor these pilots have to face in terms of rolling out is a) the budgets, in having a sufficient number of dollars, but b) lots of organizational change management. At the end of the day, when you're talking about using RFID as a tool, you're going to be changing your business processes and people don't like change necessarily. I think that tends to create something that slows the process down.

RFID Connections: Overall, do you see these positive indicators as a trend and, if so, do you think it will continue into 2010? If not, what changes do you see in these sectors?

Reik Read: I think it's very much that these continue into 2010. I simply think that you're going to have more pilot activity and more of these are publically-announced right now.

You've got Conair that is going to do a lot more activity in 2010. You've got Container Centralen, which is a pooling company, doing something both in the U.S. and in Europe. You've got Coca-Cola rolling out its Freestyle product.

What's interesting to me is these are all varying applications in varying industries and all getting some reasonably good ROI or reasonably good push for the technology. I think you'll see a lot more of the same with people looking at the technology and figuring out how it can work for them.

The pace will probably still be somewhat modest but I think it will be positive.

RFID Connections: Well, obviously it's not possible to know exactly when or how quickly the recovery will occur but do you see any particular "hot issues" companies will be looking to address with RFID in the coming year?

Reik Read: I'll go back to a few things we've mentioned and maybe a few others.

I think that revenue enhancement is something companies in general are looking at. I think they spent the first part of 2009 protecting their balance sheets, figuring out how to get their cost structure "squared away", and now I think companies in general are trying to look at how they play in this changed global economy now that the recession is likely ending. They're looking at ways in which they can improve their revenue streams and, again, I think they will look at technology tools like RFID.

Again, I think that asset management and inventory are top-of-list items that people want to make sure they're managing carefully because that goes right to cash flow.

I think item-level will be something that gets a lot more attention in terms of RFID with respect to the value that RFID can bring with those types of programs and, again, I think the apparel programs are probably "leading the charge" there and you'll see more of those pilots and probably some expansion of those pilots.

And two other items I think are important: one is security. There has been a lot of discussion on privacy, there has been a lot of action by various state legislatures to enact privacy requirements specifically targeted towards RFID. I think what the industry is doing is trying to respond to that, in part with technological solutions that address various security or privacy issues. I think we'll see more of those types of solutions come out and I think you'll probably see more process improvement with some of these pilots that help ensure at least a level of security.

And then a topic that you've written about in the past: I think sensors are going to get a little more attention, particularly in the perishable food world where they really do have a lot of loss each year and can probably save themselves a lot of money and enhance revenues with some additional data.

So, I think those are things that will be interesting in 2010.

RFID Connections: Any final thoughts you think our listeners should be aware of?

Reik Read: I think 2010, as we've talked about, is probably a year where it's a little more positive. When you look at CIOs and CFOs, they're very concerned about being able to manage their operations and what's interesting is that they are getting a lot of internal project requests really related to automated data collection technologies. I think RFID is one of those; I think mobility is the other; and I think you're going to see more spending on these types of technologies and I think that's going to help RFID just continue to advance -- again, in a pilot stage -- but to move forward.

I think 2010 will continue to be a year of progress.