RFID leads growth in smart label market

Frontline Solutions, Feb, 2004

The U.S. market for smart labels will grow 14% annually through 2007, with shipments of 11 billion units valued at $460 million. By 2012, the industry will ship more than 30 billion units worth more than $1.2 billion.

Research from the Cleveland-based Freedonia Group Inc. indicates smart labels used in supply chain management applications will reach 7.6 billion units by 2012, accounting for one quarter of the total demand.

The retail segment will account for the largest chunk of the market, shipping more than 8 billion units in 2007 and more than 18 billion units in 2012.

Demand for smart labels based on radio frequency identification (RFID) technology will nearly triple each year. Both Wal-Mart and the Department of Defense are asking suppliers to tag pallets, cases and items with RFID-based labels to improve supply chain visibility.

RFID labels, in fact, will dominate the smart label market by 2012. Freedonia estimates that RFID will account for approximately 16% of the market in 2007, but grow to nearly 60% by 2012, with more than 17 billion units shipped.

In the near term, Freedonia says the best opportunities for RFID are in labeling mail and packages, crates and pallets, airline baggage, library books and military assets. Falling prices, economies of scale, technological advances and the establishment of uniform RFID standards will create additional market segments.

While initial applications in the supply chain have focused on reusable packaging, disposable labels will grow in prominence, bringing the label conversion industry into the mix.

"In some cases they will simply continue to supply label materials to end users and/or RFID firms, who will be responsible for integrating the intelligent components and deploying the labels," says Paul Bailin, industry analyst at Freedonia. "In other cases, however, RFID technologies will be licensed to or even developed by large labeling interests, who will then be engaged at every point in the RFID application process."

Electronic article surveillance (EAS) anti-shoplifting labels will continue to dominate sales into the next decade, benefiting from falling unit costs, source tagging initiatives and the opening of apparel, or "soft goods," markets based on the transition from EAS hard tags to labels.

Eventually, RFID will begin to supplant traditional EAS labels in retail as manufacturers combine their security source tagging initiatives with RFID tracking in the supply chain, although Freedonia says EAS will remain a distinct market until well beyond 2012.

John Thorn, senior director of new business development at Checkpoint Systems Inc., an RFID and EAS vendor, estimates that EAS will give in to RFID sometime in the 2006 to 2008 time frame. "RFID can give loss-prevention personnel information they never had before," Thorn said.

RFID systems could be used to set up security zones within a store or even a distribution facility, and used in conjunction with digital video to monitor exceptions. In the supply chain, the tags can also add value for manufacturers, who benefit little from store-focused EAS source tagging programs.

RFID tags also have independent security applications, such as human and vehicular access control.

According to Freedonia, the three major EAS vendors--Tyco/Sensormatic, Checkpoint Systems and 3M--currently dominate the smart label market, accounting for 80% of units shipped. All three also offer RFID solutions. www.freedoniagroup.com