Science-fiction retailing made real

Imagine a transponder tagged to a bottle of shampoo tracking its whereabouts in a supermarket, or a “smart” shelf informing staff to replenish the selection of cream cheese, or a handheld PC allowing shoppers to scan their own purchases, call up bargains and navigate the store.

No, these gizmos aren’t science fiction; they’re cutting-edge IT retailing systems that are being tested in a supermarket in Rheinberg, Germany. The store is serving as a retail laboratory for its owner, Metro AG, together with its some 40 hardware and software partners from around the globe. And it’s raising some eyebrows in the industry.

The collection of technology in Metro’s Future Store initiative aims at boosting store efficiency, enabling targeted marketing and ending long queues, among other things. Indeed, if there were ever a store where the acronyms SCM [supply chain management] and CRM could be written in big, bold letters above the front door, here’s the place.

Which isn’t to say that everything works in the Future Store or will find its way into the market someday. This is, after all, an experimental store, but it’s one that involves real customers using real technology in real time. And it’s run by the fifth largest retailer in the world, with 2,300 stores in 26 countries and sales of €51.5 billion ($54 billion) in 2002.

Even hardened retail technology executives admit that the prospect of testing and refining multiple technologies in a genuine retail setting is enough to make their hearts pound. “This is a very unique IT retailing experiment, and we’re glad to be a part of it,” says Dimitris Nikolatas, product manager of Cisco. Cisco is providing a huge chunk of the hardwired and wireless IP infrastructure, including a content delivery platform that broadcasts audio and video content and data from a central source to any number of delivery points.

Of all the technologies being tested, two stand out: wireless and radio frequency identification (RFID). In one way or the other, the two are linked to just about every new technical gadget being tested in the store.

The entire 4,000 square foot building is covered by a WLAN, based on the 802.11b standard. The network links all mobile devices, such as personal shopping assistants (PSA) and PDAs, and some stationary devices, such as electronic shelf labels (ESL), check-out points and flatscreen displays for product promotion.

The PSA is, essentially, a mini-computer attached to the shopping cart and linked directly to the WLAN. Manufactured by Wincor Nixdorf International GmbH, the PC includes a touchscreen with integrated scanner that allows shoppers to scan their own purchases for quick payment at the check-out point. Purchase data is transmitted over the WLAN to the check-out terminal. Here shoppers give the clerk their reference number assigned by the PSA and pay without having to handle any merchandise.

Store employees are equipped with PDAs. The Future Store is testing Hewlett-Packard Inc.’s iPaq 5450 and 3970 models as well as Symbol Technologies Inc.’s PDT-8100. The handheld devices run Microsoft Corp.’s Windows Pocket PC operating system.

Linked to the WLAN, the PDAs allow employees to check inventory or reorder goods by directly accessing Metro’s merchandise management system at any time and any point in the store. The next phase of development calls for the PDAs to receive “soft phone” functionality, enabling staff to make calls in addition to sending messages or downloading information, according to Nikolatas. The service will be based on VoIP technology, as are all other hardwired and wireless in-store communication systems.

While ESL technology isn’t entirely new (the technology has been around for almost a decade), its prohibitive cost in the past had prevented widespread use.

Almost all products in the Future Store have electronic labels. These labels receive price information directly from the merchandise management system via the radio network using base stations located in the ceiling. Price information is transmitted simultaneously to the shelf and check-out point to avoid price differences due to erroneous labeling. The price labels are equipped with an easily legible digital LCD, battery and radio receiver.

Plasma advertising screens, serving as either a complement to or replacement for classic print advertising, offer multimedia information, including videos, about products. Linked to the WLAN, the displays allow product promotions to be steered quickly and selectively from a central point.

Certainly, one of the most talked about technical novelties of the Future Store is RFID. It’s a technology high on the priority list of Metro and other big European retailers, such as Tesco PLC in the U.K. and Carrefour SA in France, not to mention the European Central Bank (ECB), which is struggling to stem the flood of counterfeited euro notes.

But it’s also one deeply criticized by privacy advocates, like Consumers Against Supermarket Privacy Invasion and Numbering (Caspian). They worry that such technology could create an Orwellian world where sales clerks or, worse, law enforcement officials could read the contents of a handbag with the wave of a wand. Consumer concerns about RFID have prompted one of the biggest names in the retail world, Wal-Mart Stores, to scale back its ambitious plans for deploying the smart tag technology.

For the moment, though, let’s put privacy issue aside to have a closer look at what RFID is and why Metro and others are so keen to deploy the technology.

RFID systems have come a long way from their origins in the World War II when the U.S. government used transponders to distinguish friendly aircraft from enemy aircraft. Today they’re being used, albeit in limited numbers due to the cost of manufacturing the chips, for delivering packages, handling luggage and monitoring highway tolls.

A typical RFID tag contains a computer chip and an antenna. Unlike bar codes, which need to be scanned manually and read individually, radio ID tags don’t require line-of-sight reading. So it’s possible to read hundreds of tags a second.

Moreover, when stimulated by a radio signal, the chip transmits a unique code to identify whatever product the tag is fixed to. This unique identifier carries not only the product’s universal product code (UPC) as bar codes currently do, but also gives that particular item its own unique identify. For example, instead of a bar code saying: “This is a box of Brand X detergent,” the RFID chip says: “This is box number 12345 of Brand X.”

If the difference is subtle, the impact is huge. A retailer, for instance, could quickly trace and remove a bad lot of canned goods.

Metro is using two types of RFID technology in the store: one operates at the 13.65-MHz high frequency range; the other uses the 900-MHz to 1000-MHz UHF band. The high-frequency RFID technology is used to track individually tagged items within a 1.5-meter range inside the store. The UHF version tracks pallets and boxes, and can read at a distance of up to 7 meters. Koninklijke Philips Electronics NV is supplying both systems.

One new system being tested in the Future Store and involving RFID tags is the “smart shelf.” Tagged items are located on shelves with embedded readers that communicate directly with the merchandise management system via the WLAN. The shelves automatically recognize when tagged goods are removed or replaced, and report the movement of goods to the system. A big advantage of the system is that shelves automatically trigger requests for fresh supplies.

In addition to tracking goods, RFID technology allows shoppers in the entertainment section to swipe tagged music CDs on a system that plays a music sample from the disk.

Another RFID application under testing is delivery. Pallets and boxes are tagged at Metro’s distribution center in Essen and recorded as they pass through a gate in the Future Store. The system is designed to provide real-time information on warehouse shipments and shop-floor inventory levels.

A huge challenge, admits Gerd Wolfram, project manager of the Metro Future Store, is managing the data generated from the movement of tagged products – from delivery and stocking to selection and payment. SAP AG is testing an RFID inventory control system aimed at connecting every piece of RFID technology to the enterprise. Technology to crunch these numbers is being provided by Intel, which, together with SAP, is a principle technology partner behind the Metro pilot.

If and when RFID tags replace bar codes, Metro foresees PSAs and check-out counters being equipped with tag readers. Readers integrated in the PSAs would automatically register what shoppers have in their carts. For those shoppers preferring not to use the PSA, purchases would be automatically recorded by check-out gates equipped with readers.

Of the Future Store’s nearly 40,000 products, only around 30 carry individual tags, including razor blades from Gillette, cheese from Kraft Foods North America, shampoo from Procter & Gamble and some CDs.

The day when radio ID tags push bar codes completely to the sidelines, however, could be several years away, warns Wolfram. The price of the chip, he says, is a big factor. “The current chips cost between 30 (euro) cents and 60 cents,” Wolfram says. “For us to deploy RFID chips economically, the price will have to come down to around 2 cents.”

Chips based on plastic rather than silicon could be the answer, says Joachim Pinhammer, director of marketing of retail systems at Wincor Nixdorf. “Polymer could certainly help drive down the prices, but the use of this material for miniature chips still requires some research,” he says.

Infineon Technologies AG is one of several chip makers conducting research on plastic chips. Last year researchers at the company succeeded in integrating plastic electronic circuits on commercially available packaging film.

“This technology could certainly be an alternative but one of the big challenges will be to develop equipment that can print chips economically on packaging materials,” says Günter Schmid, a research director at Infineon. “The problem is, printing companies don’t know a whole lot about circuits and chip makers aren’t familiar with printing. But I’m pretty confident that we’ll find a solution on this front.”

If the price of manufacturing RFID chips is a concern now, the issue of privacy could prove a potential drawback in the long term. In April, fashion retailer Benetton Group SpA postponed plans to roll out RFID tags in one of its clothing outlets, following protests from privacy groups. Philips has responded to these growing fears by implementing a new feature into its tags that disables them at point-of-sell.

Earlier this summer, Wal-Mart caved to protests and pulled radio-tagged items out of the store piloting them, saying that it will now focus its RFID efforts on the supply chain. In response to consumer complaints, Gillette is also saying that its use of RFID tags is to improve SCM efficiency, claiming its focus is on tracking pallets and cases and not customers.

Metro is aware of the privacy concerns linked to RFID, says Future Store guru Wolfram, and will do what is necessary to ensure that consumer’s privacy rights aren’t violated. But the company, he is quick to add, recognizes the huge benefits of this technology – for consumers and retailers alike – in terms of service and cost.

So far, Metro’s Future Store has generated far more favorable buzz than negative. It helps, of course, when a group of industry heavyweights throws its support behind such a store and, perhaps even more, when German model Claudia Schiffer, a native of Rheinberg, stops by to shop.