IDC: Retail spending on RFID to break $1 billion by 2007

Retail spending on radio frequency identification (RFID) technology will grow more than tenfold over the next four years, according to projections announced Wednesday by IDC.

Retail spending on radio frequency identification (RFID) technology will grow more than tenfold over the next four years, according to projections announced Wednesday by IDC.

The research firm predicts RFID spending for the U.S. retail supply chain will grow from $91.5 million in 2003 to nearly $1.3 billion in 2008. Mandates for RFID tagging of cases and pallets from Wal-Mart and the Department of Defense will drive this accelerated spending – but it won’t be sustained, IDC says. Once manufacturers’ and distributors’ initial deployments are complete, RFID spending will level off as the industry prepares itself for the next wave of RFID: item-level tagging.

“Spending on RFID for the retail supply chain will grow in fits and bursts between 2004 and 2007 before flattening and stalling out in 2008,” IDC program manager Christopher Boone said in the study, “U.S. RFID for the Retail Supply Chain Spending Forecast and Analysis, 2003-2008. “Like previous ‘next big things,’ RFID for the retail supply chain will ride on a bubble of initial growth, then go into decline before the real wave of growth begins after 2008, when the potential for item-level tagging could become a reality.”

Many suppliers and distributors today are unfamiliar with RFID technology, but customer demands for wireless tagging of cases and pallets will change all that, Boone said. Over time, users will need to make changes to their business processes and enterprise applications to take advantage of the data collected via RFID tags, but most are not doing that now. “Today, the RFID layer is driving the business decisions, and this is backwards,” Boone said.

Hardware purchases will dominate RFID spending over the next four years, reaching $875 million in 2007, IDC says. Most of this spending will occur among manufacturers and distributors, who will have to invest in not only RFID tags but also the accompanying RFID infrastructure and systems integration.

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