Given An RFID Inch, Will Sam's Club Suppliers Try Taking A Mile?

Sam's Club, which wants suppliers to apply EPC/RFID tags on all pallets they ship to its stores and warehouses by next year, is significantly reducing the fee it will charge those who don't comply, from about $3 per tag to 12 cents per tag. Some suppliers will simply opt to pay the fee, potentially risking the wrath of Sam's Club—and its owner, Wal-Mart.

"Why would you want to invest in technology, training, software and people when Wal-Mart can do it for you for 12 cents?" asked Louis Bianchin, senior RFID analyst and program manager at VDC Research. "The risk there is that they (Sam's Club) could have sent the wrong message to the supplier community. That is not the message the supplier community needs to get."

Sam's Club told suppliers it is reducing, to 12 cents-per-tag, the fee it will charge them if it is forced to print and apply EPC/RFID tags to pallets that do not come with the tags in place, according to this story in the RFID Journal. The Journal noted the 12 cents fee is a huge reduction compared with the $2.50 to $3 Sam's Club had been threatening to charge.

According to a letter to suppliers from Sam's Club CEO Doug McMillon that discussed the pricing change, the company "remains committed to the vision of 100 percent EPC labeling on selling units." These units are the large items typically found in retail warehouse stores. McMillon said Sam's Club realizes its suppliers need a year to 18 months "to prepare and implement selling unit labeling," but it is expecting to have a "chain-wide rollout of pallet level labeling" by next year.

Some analysts are speculating suppliers will weigh the costs of implementing RFID labeling against the 12-cents-per-pallet fee mentioned in McMillon's letter and decide it's more cost-effective to just pay the fee. VDC's Bianchin said Sam's Club appears to be giving its suppliers "some breathing space and some time" to get their RFID ducks in a row. But cost-conscious suppliers are probably questioning the ROI of pursuing RFID labeling on their own.

Stephen Hull, product manager at SATO America, which produces both RFID and barcode labels, said the 12 cents figure is "pretty much the tag cost." He also agreed that suppliers might look at the Sam's Club fee and see no good reason to implement tagging systems.

However, Hull said he's heard from others in the industry that Sam's Club isn't going to look kindly on suppliers who play that game. "From what I understood, they will look pretty hard when the time comes for this next deadline and they could be willing to drop those suppliers," Hull said. "I could see that happening to some smaller guys."

The Business Of RFID Tags

Essentially, while Sam's Club/Wal-Mart is doing all it can to push RFID and ease its adoption by suppliers, the company does not want to be in the business of RFID tagging, Hull added.

But what if Hull and Bianchin are wrong? It's not unrealistic, given the no-end-in-sight recession that might make it hard for some suppliers to afford the RFID labeling. And if they can't, it's not out of the question to think that Sam's Club might opt to not crack down on RFID laggards. The company may instead continue to let suppliers pay the 12 cents per pallet. Such a scenario might not bode well with the RFID tag manufacturers who have been counting on selling their products to Sam's Club/Wal-Mart suppliers.

"That would have an impact," Bianchin said. "I was talking with two key RFID suppliers. The impact could be that, if you are a reader supplier and all of a sudden your potential clients, the Wal-Mart suppliers, do not want, need or care about deploying those readers, this will have a potentially negative impact."

That's not the only thing worrying RFID equipment companies. "Wait until the Chinese come into town," Bianchin said. "We have been approached, exposed, made aware of Chinese suppliers that are producing them (RFID readers) at a serious fraction of the cost."