Enter luxury retailer Prada's New York Epicenter in Soho and view the future. Not only are the architecture and design modern-looking, so is the technology inside. Dress too tight? Want to see that blouse in a different color? Fret not. Prada uses radio frequency identification (RFID) technology in its dressing rooms. So, a scanner automatically reads data on specially tagged clothes and provides instant information, via a computer screen, about the availability of sizes and colors and other items that might look fabulous with what the shopper is trying on.

Sales associates on the floor use handheld readers to track inventory as well as look up customer data like shoe size and history of other purchases. The technology also allows Prada's salespeople to show, on video screens throughout the store, how a collection looked in sketch phase and how it looked in runway shows. “I think they've [Prada] has been happy with the solution. They are getting value from improved customer experience,” says Rachael McBrearty, group director of digital technology for New York-based IconNicholson, which helped Prada integrate the RFID technology, made by Texas Instruments, used at its cutting-edge store.

Even if it has generated more buzz than dollars, Prada's RFID technology portends wider retail uses. Many industry watchers believe RFID technology, sometimes called smart labeling, will likely revolutionize the way consumers shop. “RFID promises to be one of the major next generation impacts on retail for sure,” says Richard Mader, executive director for the Association for Retail Technology Standards, a division of the National Retail Federation.

There's a “brave new world” feel to it that has consumer groups protesting and some retailers backing off. Italian apparel retailer Benetton Group, which tested RFID technology with Philips Semiconductor, backed off after consumer advocacy groups started protesting tagging plans. “It is not true that we adopted this technology,” says Federico Sador, head of Benetton Group.

“In my judgment, we will have to negotiate to give consumers back some of their privacy,” says Mader.

Up to now, RFID technology has proven useful in highway toll collection and at gas pumps where a special wand activates a charge transaction. But such giant consumer goods makers and retailers as Gillette, Procter & Gamble, Wal-Mart, Benetton and the Gap are testing the potential of RFID in tracking information.

RFID uses a readable chip that contains a unique tracking number and other information about the product. A scanner reads the chip and sends the data to an Internet-based database. Unlike standard barcodes, RFID tags can be read by retailers and manufacturers in real-time — so theft and low inventories in stores and warehouses can be detected immediately. One day, a customer will be able to walk into a store, and her entrance will immediately signal to a sales clerk who she is, her size and favorite colors and styles. She easily finds what she wants and leaves with the purchases automatically deducted from her bank account. It will be possible for a mall shopper to accumulate purchases in several stores, perhaps in a shopping cart, and automatically pay for everything at once upon exiting the store.

So far, however, retail applications for RFID are limited. For now, fewer than 5 percent of manufacturers and retailers use the technology for supply chain management and logistics purposes, says senior AIDC/RFID analyst Michael Laird of market researcher Venture Development Corp. It is mainly used to track boxes and crates of merchandise. However, starting now, and more so in five to ten years, the tiny tags equipped with tracking signals and loads of consumer data could be incorporated into all kinds of consumer goods.

The return on investment at the supply chain level of retail is starting to look good. Companies usually have to check delivery of goods by hand. An RFID reader can see every item inside a crate in seconds, saving considerable time and money. “The process of moving goods from manufacturer to retailer can be dramatically improved,” Mader says. Companies can track products from arrival at the loading dock to delivery to retail stores. “The real value is in the supply chain,” says Proctor & Gamble spokesperson Jeannie Tharrington. P&G is one of the top sponsors of MIT's Auto-ID Center, the main proponent of retail RFID technology.

Since the unit cost of tags remain high — 5 cents to 25 cents — it's premature to expect widespread tagging at this time. That probably won't happen until tags cost less than 3 cents each, Laird says, but the price will only come down when volumes increase. And while more companies are getting on board, it could be many years before RFID becomes routine.

Laird projects 38.6 percent compound growth through 2007. He estimates 2002 sales for RFID tags and readers at a mere $8.5 million.

Gap, which ran a pilot test on its jeans in 2001, says it's “still evaluating” the potential of RFID tags. “We feel it holds promise, but we're still in investigation stages,” says Debbie Eliades, a spokeswoman.

Razor maker Gillette is more committed. Its purchase of 500 million RFID tags from Alien Technology of Morgan Hill, Calif., will be a key experiment to watch. The company, in conjunction with Wal-Mart, aims to track inventory on shelves and send alerts when stocks are running low. Separately, P&G, with a Wal-Mart store in Broken Arrow, Okla., is testing RFID tags on certain products.