A Radio Chip in Every Consumer Product

By CLAUDIA H. DEUTSCH and BARNABY J. FEDER

Here's a tip to thieves: If you are bent on stealing packages of Gillette Mach3 razor blades, go someplace other than Tesco's Newmarket Road store in Cambridge, England. There, a "smart shelf" continuously queries tiny radio chips embedded in the packages it holds, and senses the silence when one is removed. The system may soon be programmed to alert security when several are taken at once, Greg Sage, a Tesco spokesman, said.

And, yes, Procter & Gamble will notice if a case of Pantene shampoo does not make it to the Wal-mart Supercenter in Broken Arrow, Okla. Its truck is equipped to monitor signals continuously from chips hidden in each case. If any case stops sending its "Hi, I'm still here" signal, a monitor in the "smart truck" will record exactly when and where.

Such technology, known as radio-frequency identification — the same techniques that enable an electronic sensor to record data from an E-ZPass tag or an office door to open for people with chip-equipped cards in their pockets — could one day stymie pilferers. But it is also capable of doing much more for commerce. Beyond Gillette and Procter & Gamble, companies as diverse as International Paper and Canon USA are teaming up with retailers and customers to apply R.F.I.D., as it is known, to tracking products from the time they leave an assembly line to the time they leave the store.

The companies are tagging clothes, drugs, auto parts, copy machines and even mail with chips laden with information about content, origin and destination. They are also equipping shelves, doors and walls with sensors that can record that data when the products are near. "We want to track all of our merchandise, and that includes items that people are unlikely to steal," William C. Wertz, a spokesman for Wal-Mart Stores, said.

Chip manufacturers are busily spreading that gospel. "That need to have the right product on the right shelf in the right store at the right time — ultimately, that's what will drive our business," said Karsten Ottenberg, a senior vice president at Philips Semiconductor, the leading maker of radio frequency chips and a unit of Royal Philips Electronics.

Early tests are encouraging. For three months in 2001, Gap tested radio frequency tags on denim clothes at a store in Atlanta. Sales jumped because the tags prevented the store from running out of popular items, and the tags made it quicker to find any items in stock.

Typically, 15 percent of shoppers leave clothing stores without getting what they want; during the test, fewer than 1 percent of Gap shoppers left empty-handed.

Radio frequency identification still has too many kinks, however, to be an immediate panacea for retailers. Cordless phones, two-way radios, local wireless networks and other communications devices that are widely deployed in factories, warehouses and stores can interfere with the signals. And, although radio tag readers can, under ideal conditions, identify well over 100 tagged items every second from quite a distance, radio waves have a hard time penetrating metals and liquids — something that Procter & Gamble is addressing with the Pantene test.

And costs are still prohibitive. The electronic tags cost at least 30 cents apiece; most experts think anything above 5 cents is too expensive to be widely used for individual packaged goods. Prices would have to fall to less than a penny for virtually everything in stores to be tagged. Sensors, which can be either hand-held or built into walls, can cost $1,000 each.

But costs are coming down fast. Alien Technology, for one, says that it can now sell radio frequency identification tags profitably at 5 cents each for orders of a billion tags or more. Just last month, Gillette said it would buy up to 500 million tags over the next few years from Alien.

But Alien's manufacturing capacity is currently just a small fraction of what it would need to fill orders over a billion quickly. And experts warn that while the silicon chips continue to shrink in size and fall in price, making the attached antennas small enough and cheap enough is much harder.

Moreover, most retailers say they are reluctant to invest in the technology until product tags are universally readable, as bar codes are today. That means that every retailer, manufacturer and carrier must agree to standards, and use tags and sensors that speak the same language.

"It's one thing to say something is a great technology, but quite another to say that you're ready to scrap existing systems to accommodate it," said Daniel Butler, vice president for retail operations at the National Retail Federation, a trade association based in Washington.

Consumer privacy is also an issue. It would be easy to combine credit card data with information from the retail chips to know who bought what, and when — and, conceivably, track the product even after it left the store.