For example, with tags on cases of wine that transmit information about their location, bottlers and retailers will know whether their products have arrived at their destinations. If a case of Chianti gets picked off a truck by a hijacker or swiped from a distribution center or simply lost, retailers will know approximately when and where it happened and will be able to hold truck drivers and distribution center managers accountable. "Smart" shelves and stores outfitted with readers will know exactly where merchandise is located throughout the store and will alert staff when shelves need to be restocked or merchandise needs to be reordered?before customers pick shelves clean.

Indeed, the ROI on these kinds of RFID applications is so promising that Wal-Mart, the 800-pound wholesaling gorilla, issued a ukase last July demanding that its top 100 suppliers put RFID tags on all their pallets, cases, cartons and high-margin items by January 2005. (The Department of Defense issued a similar announcement last October, requiring its suppliers to tag all pallets and cases by 2005.) Action on the RFID front has grown much more intense for retail CIOs since Wal-Mart made this announcement. (See "The Wal-Mart Factor," Page 86.)

Truly universal adoption and implementation of RFID technology depend on the cost of tags dropping to a nickel, a level analysts believe will be achieved in three to five years. Once that happens, it will be possible (and profitable) to tag every pack of Dentyne and every box of Ronzoni Rigatoni. Until then, item-level tagging is more realistic for high-margin items, such as consumer electronics, jewelry and haute couture. A Best Buy or a Gucci can easily justify the cost of putting a 30 cent tag on a $1,000 sound system or $250 silk shirt if that tag will help track lost merchandise and prevent theft.

While RFID may present a compelling value proposition to retailers that sell high-ticket merchandise or that wish to tag at the case, carton or pallet level, there are technical obstacles to widespread adoption that still need to be overcome. For example, the radio waves by which tags communicate are absorbed by liquids and distorted by metal, making RFID useless for tracking, say, cans of orange juice. (The Auto-ID Center at MIT is working to fix these problems.)

More important, to prepare their stores for RFID, CIOs need to take a long, hard look at their IT infrastructures.

RFID Storage:An Avalanche of Data

Limited Brands CTO and Group Vice President Starkoff believes the influx of data that RFID will generate will force CIOs to rethink their data warehousing strategies, much as she’s doing at her company. CIOs will have to get smarter about what they store and how they store it. They’ll have to measure the data’s ROI and decide what should be trashed and what should be saved based on the data’s age and the cost of storing and retrieving it. "We’ll get rid of some data that we’ve been storing that maybe doesn’t have the return," says Starkoff.