California Apparel News

As Wal-Mart Stores Inc. prepares to launch an initiative requiring its top 100 suppliers to tag shipments using radiofrequency identification (RFID) technology, the California Senate is deciding whether to legislate the technology because of consumer groups’ concerns about privacy issues.

RFID uses wireless technology to track merchandise or anything tagged with an RFID sensor or chip. RFID is similar to current bar-code technology, but it can store much more information.

At this point, Wal-Mart is employing the technology at the pallet level, but retailers such as Marks & Spencer in Great Britain have been using it to tag suits and other garments.

Retailers are using RFID to tighten control over inventories and keep store shelves stocked, but the technology has dozens of other uses. A hospital in Singapore used RFID tags to track the movements of patients, visitors and staff who were in contact with SARS patients during the recent epidemic.

German retailer Metro AG uses the tags on “loyalty cards” that use shoppers’ purchasing histories to guide them to potentially interesting products. RFID chips on store merchandise also help the German retailer determine when a product needs to be restocked and helps expedite the checkout process for customers.

Privacy versus profit

Despite the advantages of RFID, numerous consumer and privacy groups have complained that the technology has the potential to be used improperly.

Recently, about two dozen civic and privacy groups, including the American Civil Liberties Union, took a public stand on the issue, stating that RFID “has the potential to jeopardize consumer privacy, reduce or eliminate purchasing anonymity, and threaten civil liberties.”

These concerns have already sidelined the RFID initiatives of socially conscious retailers such as the Milan-based Benetton Group, which earlier this year shelved a plan to tag its Sisley line of apparel. The company said it is studying the technology and is not using RFID labels on any of its products currently.

The apparel industry sees a great cost benefit to using RFID technology because RFID tags work more quickly than current barcode technology. Some think RFID will be the standard of the future.

But the privacy concerns prompted State Sen. Debra Bowen (D–Redondo Beach), who chairs the Senate Subcommittee on New Technologies, to explore the issue so the Senate can contemplate legislation or a type of public policy for RFID.

Bowen held a series of hearings regarding the RFID issue in Sacramento. The most recent took place Nov. 20. The senator heard the testimonies of privacy groups as well as businesses and agencies currently using RFID.

The main concern of privacy advocates at the meeting, said Beth Givens, founder and director of the San Diego–based Privacy Rights Clearinghouse, was that RFID would enable consumer “profiling” and tracking of consumers into their private homes. Bowen also raised the issue that RFID hackers could obtain credit card and other personal information about consumers.

Jack Grasso, a spokesman for EPCglobal Inc., a Lawrenceville, N.J.–based venture that is leading the development of industry RFID standards, testified that “nothing is of higher priority” to EPCglobal than issues of consumer privacy.

Government regulation over revolution

The Senate has no plans to legislate RFID technology at this point.

“Nothing will probably be done until January or February, when the Senate reconvenes,” said Bowen aide Jennie Bretschneider. “The senator then may propose a bill or may say it needs to be studied further.”

Apparel manufacturers, retailers and other users of RFID do not expect the government to completely kill a viable technology that could enhance margins and facilitate commerce.

“RFID has the potential to revolutionize the way retailers do business and the way consumers shop as much as the bar code did a generation ago. But it has to be done right,” said Steve Pfister, senior vice president for government affairs for the National Retail Federation (NRF) in Washington, D.C.

Los Angeles apparel industry veteran Ace Ross agreed.

“Every intelligent CEO of every major retail chain should be developing a system with the [appropriate agencies],” he said. “RFID will be able to track containers of goods from Nike or whomever. No more theft, no more bootlegs.”

Gap Inc. program director Neco Can told a conference recently that an RFID test using tags of denim items improved customer service and sales. The Gap is still examining RFID.

NRF Chief Information Officer Dave Hogan said establishing public policy on the issue will become important as more companies implement the technology.

“The technology for RFID is still being refined,” said Hogan. “Those of us on the technical side can make RFID do as much or as little as policy-makers want, but it’s important to have clear guidance as early on in the process as possible so that research and development can focus on the way this technology will actually be used.”

For retailers thus far, the main challenge of RFID has been cost. That’s why Bentonville, Ark.–based Wal-Mart is requiring its top 100 suppliers use RFID at the pallet level by the end of 2004. All suppliers must comply with the new rule by the end of 2005. Among those affected are Levi Strauss, VF Corp. and Sara Lee.

The tags are produced in designs ranging from microchips to sensor-like tags. The cost of a tag currently ranges from 15 cents to 30 cents, but retailers said prices need to come down to pennies a piece to make RFID practical.

Insight Research, based in the United Kingdom, predicted prices will come down in the near future. Citing numerous interviews with technology and retail executives, the research company reported the chips will cost 5 cents to 10 cents next year and will go down one cent to two cents by the end of 2006. RFID technology will be commonly used in about four years, a company report said.

However, a recent analysis by Chicagobased A.T. Kearney Inc. concluded that retailers will see immediate benefits but manufacturers will assume hits on cash flow because of the cost and labor associated with placing the tags on cases and pallets.

“The hit on manufacturers’ cash flow is not something that can be made up by volume, as the saying goes,” said Dave Donnan, a Kearney vice president. “In fact, the high-volume manufacturers will see the greatest cash-flow impact.”

Local apparel resources like Vera Campbell of Los Angeles-based Design Zone said RFID issues appear to be applying to mostly high-volume manufacturers in the current marketplace.

“I'm not shipping to Wal-Mart or Target, but (RFID) is something that I'm reading about and keeping tabs on. Nobody's asking for it-yet,” she said.