New price tags help suppliers cut down on theft

Laser scanners and bar codes are standard equipment at checkout counters around the world. Now a Harrison, N.Y., company is placing a bet on the next stage in the price tag’s evolution.

It’s called radio frequency identification, or RFID. It consists of a simple computer chip and a slender antenna up to several inches in length, both embedded in a tag or label. When a radio signal is beamed at the device, it responds with a code number that is used to identify the specifics of the product.

Right now labels with the tracking devices are being slapped on boxes and pallets of products being shipped from manufacturer to distributor to store shelf. One of the key uses of the technology is to reduce “shrinkage,” an industry euphemism for theft as products disappear along the supply chain.

RFID’s potential was boosted in 2003 when Wal-Mart, the world’s largest retailer, announced it would expect its top 100 suppliers to ship certain items with the technology by January 2005. The U.S. Department of Defense and the Target Corp. retail chain also came out with similar mandates.

Supply chain management is the first step for RFID. At some point — no one is sure when — the technology should start appearing in tags on high-priced goods in large numbers. Expensive products will be first on the list because the cost of the tags, estimated at anywhere from 25 cents to 40 cents apiece, is too pricey for a tube of toothpaste or a bottle of spring water.

But the ability to slip an RFID tag into an expensive Gucci handbag is expected to help reduce the incidence of high-end counterfeit products. The tag itself won’t be able to prove the product is genuine Gucci, experts say, but it should be able to provide a provenance from factory to Park Avenue storefront that will make passing off a fake bag more difficult.

On a table outside his office at Paxar Corp., Chairman and former CEO Arthur Hershaft spreads out a series of tags. One of them is lavender-colored, about 6 inches long, and bears the name “Marks & Spencer,” a leading British retail chain. “Intelligent label for stock control,” the tag reads.

Without the identification, it would be hard to distinguish this tag from any others that Paxar makes. If it’s held up to a strong light, the tag reveals the silhouette of a rectangular antenna within. There’s a nub at the center of the tag about the size of the tip of a ballpoint pen; that’s the computer chip.

Marks & Spencer tapped Paxar to produce tags for some of their apparel products that will be rolled out in the spring of 2006. Hershaft, whose family started Paxar more than 40 years ago, is optimistic about Paxar’s role in the field.

“This is something we saw as right down our alley,” he said.

Paxar is a global manufacturer of tags and labels, particularly for the apparel industry. Its products have been sewn onto Levi and Lee jeans, Ralph Lauren shirts and OshKosh B’Gosh baby clothes. More than 65 percent of its sales are drawn from outside the United States, as clothing manufacturers continue to move production to lower-cost nations overseas.

Paxar technology ranges from something as simple as a handheld plastic gun that can paste price labels onto cans of soup at a supermarket, to sophisticated devices that encode and print RFID labels. By the end of 2004, Paxar said, it had the capacity to produce 100 million tags annually.

The company expects the adoption rate of RFID to expand “exponentially” as the price of computer chips declines, according to Paxar’s annual report.

In an interview, however, Hershaft is more circumspect. All of Paxar’s customers are interested in the technology, he said, but just a few are buying it right now.

It took 10 to 15 years before the use of bar coding became widespread, he said. The cost of the technology was a steep barrier for many companies, because bar coding changed the entire supply chain infrastructure.

“When people realize the value this can create,” Hershaft said about RFID, “I think they’ll move pretty rapidly to adopt it. … I think most of the applications have not been figured out.”