Wal-Mart CEO: 'Tough love' approach to RFID use

Wal-Mart Stores is taking a "tough love" approach to the use of RFID tags with its top 100 suppliers, which are being asked to ship pallets and cases to its distribution centers using the technology by January 2005.

H. Lee Scott, president and CEO of the US retail giant, said Sunday during a keynote address at the National Retail Federation annual conference that there's pressure to move the suppliers to radio frequency ID technology "but also an understanding that we're not trying to hurt 'em either.

"If they just can't do it, I mean, it's not like we're going to quit doing business with them," Scott said.

Only Wal-Mart's top 100 suppliers face a January 2005 deadline the retailer set for compliance, but the rest have been asked to follow suit by the start of 2006. Wal-Mart late last year informed its top suppliers during a meeting in Arkansas that the RFID rollout will start at its three Texas distribution centers, which service about 150 stores, and continue incrementally across the country.

Plans call for the time frame for the remainder of the 108 distribution centers and 3,000 stores to be shared later, on a rolling basis, with suppliers through Wal-Mart's RetailLink extranet site.

In response to a question, Scott said that his view of the time frame is that it's realistic, "but if it isn't, we'll back off." He said he met last week with suppliers, and "they were very positive in what they were doing."

"I don't think they were just doing that -- I don't know what the technical term for it is -- we call it sucking up," Scott said, his comments greeted by laughter from many of the more than 2,000 retailers and industry observers in attendance. "But I think many of our suppliers are right in the midst of it and involved."

Scott told the attendees that RFID is "a very important innovation," and the benefits will be seen over the long term -- not in 2004. He said RFID ultimately will allow retailers and suppliers to drive costs out of the business and do a better job of keeping items in stock. They, in turn, will be able to pass cost savings on to consumers.

"We will get more efficient as an industry," Scott said. "The competitiveness of this industry means that savings get passed on to the consumer. There isn't anybody in this room in retail that I know of who can simply take savings and keep it in the bottom line, in profit, because if you do, you know your competitor is passing at least a portion of it on and you're going to be disadvantaged from a price standpoint. So a consumer benefits when we do this."

Scott said the industry has always seen pushback on capital investments in new technology, such as the use of bar codes. The leaders tend to be the ones "who most capitalize on that technology.

"In Wal-Mart's case, we had a lot of resistance to RetailLink when we established RetailLink, and we asked suppliers to buy a computer," Scott said. But he said those suppliers are now able to see why a particular product line might not be doing well in a particular market or store, and they can analyze the statistics by department and by individual item if they choose.