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The Wall Street Journalreported last week that Wal-Mart is planning to test the placement of RFID tags on individual clothes beginning in August. Once in place, Wal-Mart workers will then be able to use a hand-held scanner to check what size clothing may need to be restocked on the floor shelves as well as to keep an eye on a store's backroom clothing inventory, which the WSJ story implies, is susceptible to employee theft.

Wal-Mart believes, the WSJ reports, that the ability to compare its on-the-floor inventory to its back room inventory will be the beginning of a transformation of its business.

The WSJ goes on to say that if the RFID test is successful, Wal-Mart will roll the system out to all of its 3,750+ stores.

Privacy advocates are wary of the plan, and are insisting that RFID tags be removed from the clothing upon their sale so they cannot be tracked outside of a store, which Wal-Mart says it intends to do. Advocates also worry the Wal-Mart's hand-held scanners may be able to pick-up information from customers who have embedded RFID chips in their driver's licenses, which New York and Washington State already use and many other states will likely have in the next few years. This is considered by many RFID experts to be a remote risk, however.

A more "troubling" issue may be that the information on the RFID tags could be combined with a customer's credit card information to create an even more detailed profile of that customer. It is one thing to know that you bought blue jeans, it is another to know that you bought jeans of a certain waist size and length. I can imagine some clever marketing analyst at Wal-Mart using that and other credit card information to figure out what they could sell you next.

Maybe a more immediate use of such combined information is in developing a detailed credit profile or credit score of a customer. According to this story in the LA Times last week, credit modeling companies are increasingly using data mining techniques to examine individual customer purchases in order to predict whether a person is credit-worthy or not. For instance, ordering a pizza delivered to a certain address may be used to confirm that you actually live at the address you claimed on your credit application, the Times story says.

The WSJ reports that many other US store chains such as J.C. Penny and Bloomingdale's are experimenting with placing RFID tags on clothing, as have several European retailers.

The Journal says that Wal-Mart won't say how much it expects to benefit from its RFID investment, but notes that, "... 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."

With that type of potential benefit, expect RFID technology to spread rapidly in the retail business, especially if Wal-Mart's experiment proves successful.

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