End of the bar code? The bar code which has served retailers so well over the past fifty years may soon be replaced by RFIDs (Radio Frequency Identification) or smart tags. These are tags with an embedded microchip that can receive information from a nearby computer. Unlike bar codes, smart tags could be used to track individual items. Right now a bar code can tell a retailer that the item he is looking at is a pair of White Nike Airwalks Size 11. It matters not which one of the 20 White Nike Airwalks Size 11 that he has in stock the retailer is holding. As long as the retailer can track how many of these specific shoes he is selling, the retailer can now how many to reorder. But with the new RFID technology, the retailer will not only know that he is holding a White Nike Airwalks Size 11, but that he is holding the 40005782th pair of White Nike Airwalks Size 11 ever produced.

The change is potentially as revolutionary as the introduction of the bar code was. Bar codes helped retailers move from tracking Nike shoes in their stores to being able to track those Nike by stye, size and color as well. But this still required all similar items (same style, size and color) to ge grouped together. Smart tags will let retailers get even more detailed and let them track specific items and therefore reduce theft and inventroy shrinkage even further.

The Economist reports on tecnological breakthroughs that are driving down the price of RFIDs and making them accessible:

Big technology firms such as Intel and Motorola thought it was impossible to build a tag costing a few cents. Traditional RFID makers, who grew up without the internet, did not understand the beauty of removing information from the tag and storing it centrally...Abandoning the likes of Intel, Mr Ashton and Mr Sarma turned instead to a handful of start-ups. One of them, called Matrics, says that it is now ready to start making the new tags. The price will depend on volume, says Matrics' boss, Piyush Sodha. If Matrics makes 1 billion tags a year, they will cost ten cents apiece, he says. At 10 billion tags a year, the price falls to five cents.

As efficient as some retail operations have become, there is still a lot of room to cut inventory costs:

Gillette is piloting two uses for its tags. The first combines smart tags with “smart shelves”, which are fitted with tag readers. Gillette says that retailers and consumer-goods firms in America lose around $30 billion a year in sales because shop shelves run out of products and stand empty. On Gillette's smart shelves, the tagged razors let the shelf know when they are coming and going, and the shelf keeps count. If it gets too empty, the shelf sends a message to store staff to fill it up.

$30 billion. Not a bad chunk of change to go after.