Marks & Spencer Group plc has come a long way from its humble beginnings in 1884 as a penny-bazaar stall in an open-air market in Leeds, England. Millions of people shop at its nearly 400 stores in the United Kingdom each week, and during the last few months, customers at nine of those stores have been trying on men's suits and shirts tagged with tiny radio-frequency identification chips. Soon, the retailer will use these chips on women's lingerie and clothing in 53 stores.

RFID greatly improves customer service, Marks & Spencer's James Stafford says. Photo by Richard Cannon/Getty Images

"RFID, used to tag and identify individual items, is the one technology that can make a dramatic and rapid improvement to customer service in our stores," says James Stafford, head of RFID at Marks & Spencer, which had revenue of $15.9 billion last year. Without item-level RFID tracking, it's nearly impossible for the company to keep up to date with 100% accuracy on items that come in complex sizes, such as bras, which have 68 size variations. That results in frustration for the customer who can't find her size in stock "and for our staff who want to help the customer and complete the sale," Stafford says.

RFID technology is gaining traction in Europe, as retailers there push the technology beyond the case- and pallet-level tagging supply-chain applications that are prevalent in the United States. A Tesco plc store in Leicester, England, tracks hundreds of RFID-tagged DVDs using shelf-mounted readers. A back-end system analyzes RFID data and locates misplaced DVDs. In Germany, Metro Group AG has completed a test of RFID-enabled checkout systems at two of its Kaufhof department stores. They alerted clerks to restock shelves as registers rang up purchases of tagged garments from designer Gerry Weber International.

Each of these European companies, like U.S. retailer Wal-Mart Stores Inc., has initiatives that involve suppliers affixing passive RFID tags to cases, containers, or pallets. These let the retailers know where goods are from the time they leave manufacturers' facilities to the moment they arrive at store receiving docks. Wal-Mart is the leader in terms of sheer volume when it comes to moving its own and its suppliers' infrastructures to RFID, but European retailers are out front on item-level tagging and leveraging the RFID data collected by point-of-sale applications, garment sorters, and other retail systems.

"Wal-Mart has been a more cost-conscious and bottom-line-driven organization" than most European retailers when it comes to RFID, says Christine Overby, principal analyst for consumer markets at Forrester Research. There's an eagerness there to exploit the technology in ways that aren't as apparent on this side of the pond. For example, Wal-Mart has nothing that approaches Metro's Innovation Center, where Metro is testing advanced applications such as an RFID-enabled garment sorter.

"The vision isn't only for logistics and inventory management," says Zygmunt Mierdorf, CIO at Metro, a $74.3 billion-a-year retailer with more than 2,500 stores in 30 countries. "It's about taking the technology deeper toward the customer, even after the sale, into warranty claims. It's about having the ability to track returns and trace merchandise to comply with regulatory issues and product recalls and safety."

Europe's cultural climate may make it easier for Metro and other retailers to push RFID deployments. The numbers are proof of Europeans' love affair with high tech--more than 102 million Europeans are online, according to NetRatings Inc., and self-checkout registers are prevalent throughout the continent. Tesco has installed 285 NCR Corp. FastLane self-checkout units in 96 of its U.K. stores. And chips have been embedded in plastic cards so London subway and train riders can automatically pay for their trips. Still, that doesn't mean retailers don't have to tread carefully to avoid the perception that RFID infringes on consumer privacy, a strong point of contention in Europe (see story, p. 38).

By 2008, retailers worldwide are expected to contribute $1.3 billion to the more than $7 billion global RFID market, according to IDTechEx, a U.K. analyst firm. European retailers will spend from $60 million to $100 million this year on their infrastructures and are expected to make similar investments in RFID software and tags the following year, says Peter Harrop, IDTechEx's chairman. "Marks & Spencer by 2007 has the potential to tag at the item level about 350 million individual pieces at a cost of about 20 cents for each tag," he estimates, putting the retailer at the forefront of item-level tagging.

In mid-February, Marks & Spencer unveiled plans to expand item-level tagging to clothes that come in more complex, wide-ranging sizes, such as bras, and a year from now, it will affix RFID tags to apparel in six departments across 53 stores to keep better track of clothing. Instead of using separate RFID tags and bar-code labels, as it has done in the past, Marks & Spencer is working with Paxar Corp., a merchandising-systems and -label supplier for the apparel industry, to develop a 5-inch paper label that will integrate the RFID chip and bar code in the same label. The chips, which will store serial numbers unique to each product, are from EM Microelectronics-Marin SA, a Swatch Group Ltd. company. Clerks will take inventory at the end of each day by scanning the RFID chips on items remaining on the floor with 868-MHz handheld readers.

At registers, clerks will scan bar codes rather than RFID information to allay any concerns that the RFID data will be connected to individual buyers, Marks & Spencer says. Labels on the tags and pamphlets in the store will explain that the RFID chip is an intelligent label for stock control, Stafford says. Clerks will continue the practice of offering customers the option of removing the tags in the stores.

Tesco, a $64 billion-a-year supermarket powerhouse with more than 2,300 stores in Europe and Asia, has been working recently with at least 10 suppliers to put RFID tags on small items, such as cosmetics and DVDs, that range in price from $20 to $30. The retailer will expand its yearlong trial tracking DVDs at one store to 10 sites, Tesco IT director Colin Cobain told attendees at a conference earlier this year, but company officials declined to provide more details. Tesco has been working on the DVD project with distributor Entertainment U.K. Ltd., which affixes the RFID tags on products so they can be tracked by readers in back rooms and on the floor, using technology built into store shelves, made by MeadWestvaco Corp.'s intelligent-systems division. RFID makes it easy for Tesco to check stock levels and find DVDs that have been put back on the wrong shelf.

Early reports indicate the RFID trial is paying off. IDTechEx's Harrop estimates that Tesco may have had a 4% increase in DVD sales during its trials and may get a return on investment within a year.