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RFID will play a crucial role in JC Penney’s customer-centric sales strategy

A number of developments over the past several weeks have signaled a major uptick in RFID deployments and further evidence that the technology will soon become ubiquitous in retail and many other verticals.

The latest boost for RFID came last week when JC Penney CEO Ron Johnson outlined the role that RFID will play in its restructured retailing strategy. Johnson told Forbes that he expects RFID to enable an entirely automated checkout process by the end of next year.

Separately, new research studies predict solid growth for RFID. One report reveals that 54 percent of enterprises have already deployed or are in the pilot stage.

The JC Penney news broke last week from Fortune’s Brainstorm Tech Conference in Aspen, Colo., where Johnson told Forbes editor Jennifer Reingold that the retailer is moving rapidly toward item level tagging for all of the products it stocks.

Some time next year all JC Penney categories, like the MNG by Mango line, will carry RFID tags.

“We’ll have mobile checkout, you know, rolling out now and in the fall,” Johnson, a former retail executive with Apple, said during an interview. “But we’re also doing something that no retailer has done completely…we are going 100 percent RFID with ticketing this fall.”

“So Feb. 1 next year, the entire Penney’s platform will be on RFID tickets. Now most people use RFID for internal operations inventory management. We’re going to jump right to the customer, and my goal by the end of 2013 is to eliminate the cash route.”

Johnson’s goal is to allow customers to check out anywhere in the store at any time, similar to Apple’s retail strategy which has eliminated most traditional checkout areas. Johnson says “we’re going to roll out self checkout to our stores next year, and it’s really cool and it’s really easy because it’s RFID-based.”

Bill Hardgrave, the dean of the College of Business at Auburn University and the founder of the University of Arkansas RFID Research Center, says that Johnson’s remarks translate into a strong endorsement for RFID and its future in retail.

“It reinforces the direction that the industry is headed,” says Hardgrave. “It’s a bold and very aggressive stance that they are taking but it’s consistent with the changes the new CEO is trying to make. I credit them for having the vision to see how RFID ties together the other elements they are trying to put into the stores.”

JC Penney has already moved to a new pricing strategy and is unveiling a store-within-a-store concept this fall, where certain product categories are sold in special boutique-like sections of the store. All jeans will be sold within a “denim bar,” for example. Other product categories will also have their own sections. The sections will utilize self-checkout enabled by RFID, allowing store personnel to spend more time with customers.

That’s where RFID comes into play. Inventory management and eliminating out-of-stocks is crucial to the success of JC Penney’s new high-touch retailing format.

“They are moving to a high-touch model, but high-touch demands strong inventory management,” says Hardgrave. “If you’re going to have high-touch in these various product segments, you’ve got to make sure you understand your customer. And after going through all the motions to get the customer excited about the product, you’ve got to have the product in stock. So inventory accuracy is going to be crucial for them to pull off what they are trying to do with the store-within-a-store model.”

While Macy’s and JC Penney have taken the most aggressive stance with RFID among department store brands, Hardgrave says that the action behind the scenes is heating up in all retailing categories.

“The level of activity just continues to amaze me,” says Hardgrave. “During the first quarter I received so many calls from retailers, and Q2 activity has clearly gone beyond the first quarter.”

Hardgrave says that department stores in particular seem to be gaining traction as more brand owners and vendors that are in multiple stores begin wide spread tagging.

“A lot of brand owners are starting to tag and some are hitting that critical mass and tagging everything,” says Hardgrave. “Those products are flowing into multiple retailers, which gives the retailer the impetus to start using those tags as they come into the store.”

While action at the department store level is strong, specialty retailers like sporting goods stores or specialty apparel boutiques are honing their item level tagging strategies, which can vary strongly from large department stores.

“While some department stores roll out store by store or by product category, the specialty store strategy will be to tag everything,” says Hardgrave. “They can do that much faster than a major department store can,” since a specialty retailer might carry between 15,000-35,000 items. “They will tag everything and roll out chain wide. On one hand it’s a simpler model, but it also requires much more due diligence on the front end because you are not just rolling out one or two categories, but hitting the entire store.”

The JC Penney outlook points to an overall strengthening of the RFID marketplace. In fact, a new study released by research firm IDTechEx says that the total RFID market will reach $7.46 billion in 2012, up from $6.37 billion in 2011. In total, four billion tags will be sold in 2012, a sharp increase from the 2.9 billion tags consumed in 2011.

The market forecast from IDTechEx includes tags, readers and software/services for RFID cards, labels, fobs and all other form factors. It includes passive and active RFID. IDTechEx expects the market to grow four-fold over the next 10 years, reaching $26 billion in 2022.

The retail sector continues to see strong demand for RFID tags, especially for apparel tagging. The IDTechEx report says that apparel will consume one billion RFID labels in 2012, growing to 1.35 billion in 2013. Ticketing in the transportation sector will demand 500 million tags in 2012.

The report states that RFID orders are up by 10 percent, often much higher, in many applications. This is due primarily to the growth of passive UHF systems for tagging apparel and many closed loop applications.

A second research report released by CYBRA Corp. reveals that more than half of companies surveyed have deployed or are piloting RFID technology.

CYBRA’s first RFID survey, conducted in 2008, revealed that 21 percent of companies were using RFID technology. That number grew to 54 percent in the 2012 survey, representing a 157 percent increase in four years.

According to the recent survey, 81 percent of respondents expect to achieve ROI in three years or less, up from 72 percent in the previous survey. Of the 19 percent of respondents that have no interest in RFID, most are concerned about high costs and have trouble identifying clear ROI opportunities.

“This year’s RFID survey results are a clear indication that businesses are beginning to understand the benefits that RFID technology can bring to their organizations,” says Harold Brand, president and CEO of CYBRA. “They also reflect a growing realization that RFID investments result in a shortened return cycle than was previously believed.”

The survey also revealed that tracking products (67 percent) and improved inventory management (62 percent) remain the top two business drivers that determine RFID adoption. The key anticipated benefits of RFID adoption are improved inventory accuracy (42 percent),increased distribution center efficiency (30 percent), and improved customer service (28 percent).

Click here for the full Ron Johnson interview and to view the video.

Click here to view RFID 24-7′s prior coverage on JC Penney and item level tagging.

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