Microchip tipped to boost Warehouse profits

The Warehouse is assessing new tagging technology that could ultimately boost the company's sales by tens of millions of dollars.

The company has disclosed it is undertaking a "proof of concept" evaluation of a radio frequency identification (RFID) system with IBM, looking at the use of microchip tags that emit radio signals to track goods.

It will decide early next year whether to go ahead with a full trial.

While the system sounds mundane - cartons would be tagged in order to track stock and improve the availability of goods on shelves - Warehouse chief information officer Owen McCall said US retail giant Wal-Mart has estimated it could increase its cashflow by US$3 billion a year through better stock availability using RFID.

That translates to fresh sales of about US$8 billion, a 2 or 3 per cent increase in Wal-Mart's annual sales.

McCall said running those numbers for The Warehouse would equate to a sales increase of about $45 million annually.

He cautioned there were no guarantees around such a figure. The New Zealand company could have a different experience and it would be at least two years before the technology could be adopted on any significant scale - if the Warehouse chose to go ahead with it at all.

But he thought the system had potential.

"The reason we're looking at RFID is because we believe the technology is real and we want to take the next step up in terms of supply-chain efficiency," he said.

"We want to get better at the way we supply goods to our stores."

RFID systems have attracted privacy concerns overseas, particularly the tagging of products such as clothes and the potential for goods to be tracked even after customers had left the store.

McCall said at this point, the Warehouse was looking at tagging only cartons which would not leave the store. The tags would be destroyed when the packaging was recycled.

The system under consideration would replace barcodes, which must be scanned within a 40cm distance, with tags that don't require a line of sight to be read from up to two metres away.

That could free up staff from stock handling and allow them to focus on customer service.