PLANYC 2030

 

Wal-Mart Stores Inc. plans to roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear, the first step in a system that advocates say better controls inventory but some critics say raises privacy concerns.

Starting next month, the retailer will place removable “smart tags” on individual garments that can be read by a hand-held scanner. Wal-Mart workers will be able to quickly learn, for instance, which size of Wrangler jeans is missing, with the aim of ensuring shelves are optimally stocked and inventory tightly watched. If successful, the radio-frequency ID tags will be rolled out on other products at Wal-Mart’s more than 3,750 U.S. stores.

“This ability to wave the wand and have a sense of all the products that are on the floor or in the back room in seconds is something that we feel can really transform our business,” said Raul Vazquez, the executive in charge of Wal-Mart stores in the western U.S.

Before now, retailers including Wal-Mart have primarily used RFID tags, which store unique numerical identification codes that can be scanned from a distance, to track pallets of merchandise traveling through their supply chains.

Wal-Mart’s broad adoption would be the largest in the world, and proponents predict it would lead other retailers to start using the electronic product codes, which remain costly. Wal-Mart has climbed to the top of the retailing world by continuously squeezing costs out of its operations and then passing on the savings to shoppers at the checkout counter. Its methods are widely adopted by its suppliers and in turn become standard practice at other retail chains.

But the company’s latest attempt to use its influence—executives call it the start of a “next-generation Wal-Mart”—has privacy advocates raising questions.

While the tags can be removed from clothing and packages, they can’t be turned off, and they are trackable. Some privacy advocates hypothesize that unscrupulous marketers or criminals will be able to drive by consumers’ homes and scan their garbage to discover what they have recently bought.

They also worry that retailers will be able to scan customers who carry new types of personal ID cards as they walk through a store, without their knowledge. Several states, including Washington and New York, have begun issuing enhanced driver’s licenses that contain radio- frequency tags with unique ID numbers, to make border crossings easier for frequent travelers. Some privacy advocates contend that retailers could theoretically scan people with such licenses as they make purchases, combine the info with their credit card data, and then know the person’s identity the next time they stepped into the store.

“There are two things you really don’t want to tag, clothing and identity documents, and ironically that’s where we are seeing adoption,” said Katherine Albrecht, founder of a group called Consumers Against Supermarket Privacy Invasion and Numbering and author of a book called “Spychips” that argues against RFID technology. “The inventory guys may be in the dark about this, but there are a lot of corporate marketers who are interested in tracking people as they walk sales floors.”

Smart-tag experts dismiss Big Brother concerns as breathless conjecture, but activists have pressured companies. Ms. Albrecht and others launched a boycott of Benetton Group SpA last decade after an RFID maker announced it was planning to supply the company with 15 million RFID chips.

Benetton later clarified that it was just evaluating the technology and never embedded a single sensor in clothing.

Wal-Mart is demanding that suppliers add the tags to removable labels or packaging instead of embedding them in clothes, to minimize fears that they could be used to track people’s movements. It also is posting signs informing customers about the tags.

“Concerns about privacy are valid, but in this instance, the benefits far outweigh any concerns,” says Sanjay Sarma, a professor at the Massachusetts Institute of Technology. “The tags don’t have any personal information. They are essentially barcodes with serial numbers attached. And you can easily remove them.”

In Europe some retailers put the smart labels on hang tags, which are then removed at checkout. That still provides the inventory-control benefit of RFID, but it takes away other important potential uses that retailers and suppliers like, such as being able to track the item all the way back to the point of manufacture in case of a recall, or making sure it isn’t counterfeit.

Wal-Mart won’t say how much it expects to benefit from the endeavor. But a similar pilot program at American Apparel Inc. in 2007 found that stores with the technology saw sales rise 14.3% compared to stores without the technology, according to Avery Dennison Corp., a maker of RFID equipment.

And while the tags wouldn’t replace bulkier shoplifting sensors, Wal-Mart expects they’ll cut down on employee theft because it will be easier to see if something’s gone missing from the back room.

Several other U.S. retailers, including J.C. Penney and Bloomingdale’s, have begun experimenting with smart ID tags on clothing to better ensure shelves remain stocked with sizes and colors customers want, and numerous European retailers, notably Germany’s Metro AG, have already embraced the technology.

Robert Carpenter, chief executive of GS1 U.S., a nonprofit group that helped develop universal product-code standards four decades ago and is now doing the same for electronic product codes, said the sensors have dropped to as little as seven to 10 cents from 50 cents just a few years ago. He predicts that Wal-Mart’s “tipping point” will drive prices lower.

“There are definitely costs. Some labels had to be modified,” said Mark Gatehouse, director of replenishment for Wrangler jeans maker VF Corp., adding that while Wal-Mart is subsidizing the costs of the actual sensors, suppliers have had to invest in new equipment. “But we view this as an investment in where things are going. Everyone is watching closely because no one wants to be at a competitive disadvantage, and this could really lift sales.”

Wal-Mart won’t disclose what it’s spending on the effort, but it confirms that it is subsidizing some of the costs for suppliers.

Proponents, meanwhile, have high hopes for expanded use in the future. Beyond more-efficient recalls and loss prevention, RFID tags could get rid of checkout lines.

“We are going to see contactless checkouts with mobile phones or kiosks, and we will see new ways to interact, such as being able to find out whether other sizes and colors are available while trying something on in a dressing room,” said Bill Hardgrave, head of the RFID Research Center at the University of Arkansas, which is funded in part by Wal-Mart. “That is where the magic is going to happen. But that’s all years away.”

Beverage pricing points to retailer’s influence on rivals, suppliers

 

 

Walk into the lone Chicago Wal-Mart to stock up on pop in the summer heat and there, rising like a palm tree in an oasis, is a stack of Coke cases at a special price: 24 cans for $5.

A brand-name beverage like Coca-Cola for about 20 cents a can is more than a great deal. It’s a sign of Wal-Mart’s purchasing might, a warning shot to competitors and less than good news for the beverage industry.

Experts call that kind of intimidating power “disruption,” and it will come to the Chicago area in a bigger way now that Wal-Mart plans to open a second store in the city, on its way to what it hopes will be dozens more urban locations.Squeezed by higher bottling costs and a decade of stagnant pricing, beverage companies had only recently managed to persuade consumers to pay more for soda, according to industry analysts. Now, in one swoop, Wal-Mart has gotten attention for itself while taking a bite out of soda sales at other chains.

The promotion, which began shortly before Memorial Day, is pushing other retailers to roll back prices to pre-1990s levels to compete. And it has stirred new fears about Wal-Mart’s ability to wield its massive buying power to work against the interests of the industries that supply their stores.

“They just have so many stores that they can really push back, they can really squeeze, not just soft drink companies but other food firms, to force them to take the hit and take their margins down,” said Philip Gorham, an equity analyst with Chicago-based Morningstar who covers the beverage sector.

Wal-Mart’s power is indisputable. It is the largest retailer in the world, which gives it the ability to negotiate with manufacturers to get lower prices that other stores, particularly smaller independent ones, may struggle to match.

Price cuts on such products as soda are part of an aggressive initiative Wal-Mart announced in October 2008 and began to roll out in spring 2009. In May of this year, deep discounts on products like pop, ketchup and other items raised Wal-Mart’s pricing lead versus other competitors fivefold compared with the previous month. Analysts say the promotions are expected to appear around every holiday through the second half of this year.

“Wal-Mart is so huge that any action they take tends to have a big consequence. So if they do a rollback on a core product, they drive huge volume, so much that they disrupt the supply chain of producers,” said David Garfield, who is based in Chicago and leads the Consumer Products practice of AlixPartners.

Soda is the single-most consumed beverage in the U.S., and a $70 billion-plus market. For many retailers, it is also considered an important driver for pushing traffic into their stores. But for the megachains like Costco and Wal-Mart, soda is less important, which gives them more negotiating clout.

“There’s been a power shift over the past 10 years where the power has shifted from packaged-goods firms to these huge grocery store chains,” said Gorham at Morningstar.

A dispute over pricing in 2009 led Costco to stop selling a number of Coca-Cola brands in its stores. And while the two sides eventually made up, it represented the first time a retailer was bold enough to go up against a powerful brand like Coca-Cola.

Wal-Mart can afford to be bold, and its impact is readily seen. Median sales decrease 40 percent at similar high-volume stores when a Wal-Mart enters the market, 17 percent at supermarkets and about 6 percent at drugstores, according to a study published in June 2009 by researchers at multiple universities and led by the Tuck School of Business at Dartmouth College in Hanover, N.H.

Stores that fail to prepare by adopting a new strategy to survive tend to feel the greatest impact. Similar high-volume stores, like Target, fare the worst when a Wal-Mart moves into an area because they are forced to compete by reducing regular prices, the study found.

“We’re fiercely competitive on price and routinely shop our competitors, including Wal-Mart, to ensure we’re providing our guests with the best possible value,” said Jennifer Mooney, a spokeswoman for Target.

Mooney also said the chain has a promise to match any print-advertised price on an identical product featured by a local competitor, including Wal-Mart.

Drugstores like Deerfield-based Walgreens are the least impacted, according to the study, and are generally able to stay afloat by increasing their assortment size.

“Overall we compete very well with Wal-Mart,” said Jim Cohn, a spokesman for Walgreens. “We cater to a wide customer base, and often the need or occasion for a Walgreens shopping trip is different from many of our competitors.”

Supermarkets, the study found, can survive by doing their best to differentiate themselves from Wal-Mart, rather than attempting to compete.

Karen May, a spokeswoman for Jewel-Osco, said the company has responded to Wal-Mart’s deep discounts by offering a variety of promotions “every day” and by promoting low-cost private-label brands. She said Jewel-Osco has not seen a change in pop sales since Wal-Mart’s promotions began.

A Dominick’s spokeswoman said “customers have other fluids they continue to look for,” including water, sports beverages and energy drinks.

But a recent analysis by J.P. Morgan found that Wal-Mart’s rollbacks on pop have already upset grocery stores and have the potential to disrupt the beverage industry.
Following Wal-Mart’s soda promotions in anticipation of Memorial Day weekend, national soda sales shifted dramatically to Wal-Mart and away from other grocers, the equity research firm found. Memorial Day weekend is traditionally seen as a lift for beverage sales, but sales volume dropped 9 percent during the four weeks ended June 12, according to data from the Nielsen Co.

More of that disruption may come to Chicago.

Today, just one Wal-Mart stands within Chicago’s city limits. But following a six-year battle to open more stores in Chicago, the behemoth saw progress last week when the City Council voted unanimously to let Wal-Mart build a second store on the South Side.

The chain says it hopes to open dozens of stores in the city through a community partnership agreement that would mean millions of dollars for Chicago charities and a guaranteed higher-than-minimum wage for Wal-Mart employees in Chicago.

Wal-Mart’s impact goes beyond retailers, but the exact impact on manufacturers isn’t clear because few will discuss private negotiations. Some brands have said that Wal-Mart pays for big promotions itself, essentially taking a loss on some sales to bring in more traffic. There are indications that manufacturers also are making concessions to keep Wal-Mart from bullying them off the shelves.

A Wal-Mart spokeswoman said the company does not comment on pricing strategy, industry speculation or sales on a particular product. She said lower soda prices are part of the company’s commitment to “helping families save money so they can live better.”

Representatives for Dr Pepper Snapple Group and PepsiCo Group did not reply to requests for comment. Coca-Cola said the company does not comment on customer relationships.

Analysts say when customers see cheap pop in bulk quantities, the tendency is to stock up, which means a lull in sales following a promotion.

“The risk of such rollbacks are several,” J.P. Morgan wrote in its analysis. “For one, a rollback creates a powerful lift and thus demand for a product, necessitating a production spike and disruption to the supply chain. Inventories can be thrown off kilter. And ultralow pricing poses a threat to brand equity.”

Pradeep Chintagunta, a marketing professor at the University of Chicago Booth School of Business, said retailers are less likely to react to low pricing when a single Wal-Mart moves to an area. But the threat of dozens of Wal-Marts could mean significant changes for Chicago, particularly among chains that rarely localize their promotions on a store-by-store basis.

Kusum Ailawadi, professor of marketing at the Tuck School of Business, said chain retailers usually promote according to “zones,” although they could benefit from a more nuanced strategy.

“Let’s say you now define this as a Wal-Mart zone. Retailers I’ve spoken with have said, ‘We essentially cut our prices down almost across-the-board but especially in the departments where we have more overlap with Wal-Mart,’” she said.

Wal-Mart Stores Inc., the world’s biggest retailer, plans to offer its U.S. employees the opportunity to earn college degrees in a partnership with American Public University.

Workers will be eligible for grants from American Public totaling 15 percent of tuition, the Charles Town, West Virginia- based online educator said today in a statement. Earning degrees in fields such as security management, employees will receive credit for on-the-job experience, American Public University said. Academic work will be done through online classes beginning in September.

“Our partnership with APU will not only help you build an even better life for yourself and your family, but will help put you ahead in your Wal-Mart career,” Eduardo Castro-Wright, vice chairman and U.S. stores chief, said today in a letter to employees.

Wal-Mart, based in Bentonville, Arkansas, employed 2.1 million people worldwide and 1.4 million in the U.S. as of Jan. 31. The retailer’s stock price was unchanged at $51.72 in New York Stock Exchange composite trading at 4:15 p.m. The shares slipped 3.2 percent this year.

APU, part of American Public Education Inc., offers 70 undergraduate and graduate programs through online classes. Undergraduate courses cost $250 per credit hour and graduate classes are $300. Each Wal-Mart employee enrolled in the program will receive grants totaling 15 percent of tuition, the retailer said on its website.

American Public Education increased $1.11, or 2.7 percent, to $42.24 on the Nasdaq Stock Market. The shares have jumped 23 percent this year.

Wal-Mart said Wednesday it is pulling an entire line of Miley Cyrus-brand necklaces and bracelets from its shelves after tests performed for The Associated Press found the jewelry contained high levels of the toxic metal cadmium.

In a statement issued three hours after AP’s initial report of its findings, Wal-Mart said it would remove the jewelry, made exclusively for the world’s largest retailer, while it investigates. The company issued the statement along with Cyrus and Max Azria, the designer who developed the jewelry for the 17-year-old “Hannah Montana” star.

Wal-Mart Stores Inc. had learned of cadmium in the Miley Cyrus jewelry, as well as in an unrelated line of bracelet charms, back in February, based on an earlier round of testing conducted at AP’s request, but had continued selling the items. It said as recently as last month that it would be too difficult to test products already on its shelves.

In its statement, Wal-Mart did not say whether it would also remove the bracelet charms.

Exactly how many of the items have been sold was unclear. The charms – also available exclusively at Walmart stores – were sold under the name “Fashion Accessories,” though Wal-Mart has not said when they began appearing on shelves. The Miley Cyrus jewelry hit stores in December.

Long-term exposure to cadmium can lead to bone softening and kidney failure. It is also a known carcinogen, and research suggests that it can, like lead, hinder brain development in the very young.

Cadmium in jewelry is not known to be dangerous if the items are simply worn. Concerns come when youngsters bite or suck on the jewelry, as many children are apt to do.

Wal-Mart said that while the jewelry is not intended for children, “it is possible that a few younger consumers may seek it out in stores.”

“We are removing all of the jewelry from sale while we investigate its compliance with our children’s jewelry standard,” Wal-Mart said.

That was a reference to a policy Wal-Mart voluntarily implemented last month, under which suppliers are required to prove their products contain little cadmium, or else Wal-Mart would not accept them.

The company’s policy of not checking products already on the shelves appears to have changed: In its statement, Wal-Mart said it reviewed children’s jewelry and pulled “the few products that did not” comply with its new testing regimen.

Cadmium in children’s jewelry became a public concern in January when the AP published the results of an investigation that showed items at Walmarts and other large chains were as much as 91 percent of the toxic metal by weight.

That testing was conducted by chemistry professor Jeff Weidenhamer of Ashland University in Ohio. In February, Weidenhamer was asked to provide to Wal-Mart headquarters detailed results of tests on items he bought at Walmarts as part of testing he had done for AP. Those items included 10 of the charms and three from the Cyrus line.

To judge the continued availability of pieces that Wal-Mart has known were contaminated, AP dispatched reporters throughout the country last month to buy any of the 13 items they could find. The packaging said they were made in China; all were bought for $6 or less.

All but one of the 13 were on store shelves in the eight states where AP reporters looked. Contrary to Wal-Mart’s statement Wednesday, which said the Miley Cyrus jewelry was sold in the women’s apparel section, AP reporters found the items either in the jewelry section or discount bins.

The items were then tested by Weidenhamer. Of 61 samples, 59 contained at least 5 percent cadmium by weight, with 53 of those measuring 10 percent or higher.

Weidenhamer’s prior research has shown that the testing method he used – an X-ray gun that can roughly tell the amount of cadmium in an item – typically underestimates how much is present.

Representatives of the jewelry industry have argued that the presence of cadmium, even at high levels, is not by itself proof that an item is dangerous. The important thing, they say, is how much can escape if the item is sucked, bitten or swallowed.

Lab testing conducted by Weidenhamer at AP’s request showed that several items easily shed the metal when exposed to a mixture that simulated human stomach acid.

The day after AP’s original report, Wal-Mart said it was pulling two of the highlighted items – pendants with themes from the Disney movie “The Princess and the Frog.” Within three weeks, the chain had agreed to recall all the pendants already sold.

Since then, the U.S. Consumer Product Safety Commission has issued two more recalls, for charm bracelets sold at the international jewelry chain Claire’s and at a Dollar N More store. Last week, the agency’s spokesman said there will be more recalls.

While AP’s January investigation focused on jewelry clearly intended for children, the items tested for AP this time were labeled “not intended for children under 14 years.” That is an important legal distinction: Under current law, children’s items are defined as for kids 12 and under, and children’s products are subject to regulations that others are not.

For reasons that are not fully understood, girls ages 6 to 11 – an age range that includes many fans of Cyrus’ “Hannah Montana” TV show, movies and CDs – appear to be more at risk from cadmium.

Data from a major national study found that girls of that age absorb more cadmium than other children or adults, according to Bruce A. Fowler, a toxicologist with the Centers for Disease Control and Prevention.

The increased absorption could be because those girls typically have iron deficiency and their bodies grab on to cadmium as a substitute, Fowler said, or it could be because they encounter more of the metal in objects such as jewelry.

The importer of the bracelet charms, Cousin Corp. of America, said that earlier this year, it persuaded one of the Chinese factories with which it works to stop using cadmium. The cadmium-heavy jewelry Weidenhamer tested was produced in 2008 and 2009 at the problem factory, said Roy Gudgeon, vice president of merchandise at Florida-based Cousin.

“Our intention as a company is to never willingly cause harm to a child,” he said.

Federal regulators’ own research says that kids start becoming interested in making their own jewelry around ages 6 to 8. As for products featuring Cyrus, her fans include teenagers, tweens, even kindergartners.