April 23, 2003 12:35 PM PDT

Intel, SAP shop 'store of the future'

A German retailing chain next week will open a "store of the future" that will feature radio frequency tags for inventory management and a scale that can identify different types of produce as retailers try to use technology to reduce costs.

The Metro conglomerate will cut the ribbon Monday on an electrified version of one of its Extra stores in Rheinberg, Germany, in an effort to acclimate the public to electronic store management. Metro is the sixth largest retailer in the world; the Extra stores are urban general stores that sell groceries and household items.

Intel and German software developer SAP are the principal technology companies behind the Metro pilot. Hewlett-Packard, Cisco and Philips, among others, are also part of the trial.

Among the technological gizmos on display, the store will feature electronic checkout through radio frequency identification (RFID) tags, "smart shelves" that provide up-to-date information about how much product is left on shelves, self-service information kiosks and the Smart Scale, an IBM invention that can identify the type of produce placed in the pan, said Jon Stine, industry manager for retail and consumer packaged goods at Intel.

Although the systems will attempt to make shopping more convenient, the trial is largely aimed at showing other retailers how they can cut expenses, Stine said.

Stocking shelves and managing inventory is largely a physical process now, and doesn't work all that well. If products come with RFID tags, retailers could track them the moment they are delivered to the store. The information can then be used to minimize back room inventory over time and keep shelves full. Store security and analysis of sales data can also be improved.

"The real return on investment on this is going to be in the back room," Stine said.

Intel's interest doesn't lie so much in making chips for RFID tags. Instead, the company hopes to provide chips and other technology for

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point-of-sale registers and inventory management servers. The company is preparing similar RFID pilots for the health care, transportation and security industries.

So far, retailers seem to be receptive to the general concept.

"The top 20 retailers will experiment with RFID over the next 18 to 24 months," said Gene Alvarez, vice president of technology research services at Meta Group. "It will be used in inventory control, security (and) fraud protection."

The practical applications are fairly apparent, Alvarez added. During a sale, store shelves are often a mess. An employee with a handheld, however, could scan a pile of RFID-tagged clothes and determine if a specific size is on the shelf, or in the back room, Alvarez said.

Retailers are also being cognizant of the privacy issues. Earlier this year, Philips Semiconductor said it planned to ship 15 million RFID tags to clothing manufacturer Benetton that would be included in the company's Sisley clothing line. Soon after the announcement, U.S.-based privacy group Consumers Against Supermarket Privacy Invasion and Numbering lashed out at the international clothing chain and called for a worldwide boycott. Two weeks later, Benetton said it had only been exploring RFID.

For its part, Intel is working on technology that will disable the chip when consumers leave the store.

In any event, RFID tags are far from the best technology for tracking consumers. The information on a tag can be extracted only if there is


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a reader within two to three yards, Alvarez said. A marketing executive would have to chase a customer down the street with something that looks like a bar code scanner to determine what they are wearing.

Besides, "sticking it in the microwave just kills it anyway," Alvarez said.

Retailing is one of the vertical industries that Intel has targeted as ripe for a technological overhaul. In the past two years, the Santa Clara, Calif.-based chipmaker has formed internal groups to develop technology and form key alliances to expand into specific industry segments, such as entertainment and financial services.

Recruiting employees from the outside plays a large part in the strategy. Stine, for instance, came from the clothing manufacturer Pendleton. The company has also recruited employees from life sciences companies and the health profession for its medical push.

 

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