The success of the radio frequency identification (RFID) tag industry in 2006 has been a mixed proposition. Strong RFID activity has been shown in side businesses like contactless payment launched at 7-Eleven and Jack-in-the Box, and in item-level tagging and RFID display efforts.

Yet, the core area where RFID tagging was anticipated to be such a success, pallet and case tagging, has been slower to take off. Asset management, traceability, and contactless payment are showing promise as new technologies. Yet, consumer good manufacturers have been dragging their feet on tagging pallets and cases of goods, with the result being that as little as 250-300 million tags were sold in 2006 at a heavy loss of 10 to 15 cents each. Readers are also being sold at a heavy loss.

Anti-theft tagging became popular because retailers like Wal-Mart and Home Depot told their suppliers that they needed to source-tag their products or they would not sell them through their stores. At the time, estimates were that tags would cost 1 or 2 cents apiece. With RFID, tags are costing at least 12 to 15 cents each.

The real problem with the technology is that retailers are the ones who are reaping all the benefits, and suppliers are bearing the costs. The RFID tagging of fewer than 400 million pallets has already improved retail margins by over $100 million. This was provided at a loss of $100 million by the consumer goods companies who supplied them. RFID suppliers also lost about $100 million, money that came mostly from investors, who didn’t realize that profits realized would be flowing into the pockets of the large retailers.