What is RFID Technology and How Does It Work? A 2025 Guide for Retailers

Inventory headaches cost retailers every year through stockouts, overstocking, and shrinkage. Radio frequency identification (RFID) technology solves these challenges by using radio waves to give you accurate, real-time tracking data for your inventory.

The decades-old technology evolved from its World War II radar system roots into a must-have for modern retail operations, driven by the growing need for faster omnichannel fulfillment, supply chain visibility, and inventory accuracy.

Want in on the action? Learn how RFID technology works, its advantages for retailers, and how you can use RFID technology to improve your store’s performance.

What is RFID technology?

RFID belongs to a group of technologies called automatic identification and data collection (AIDC)—tools that automatically identify and track items, with little human interaction. 

An RFID system has two main parts: 

• Readers: Fixed or mobile devices with antennas that send and receive electromagnetic signals back from RFID tags. These let you scan hundreds of items in seconds instead of one at a time.
• Tags: Electronic devices that contain RFID chips or integrated circuits (IC) that store a unique identifier, which communicate with the reader via radio waves. These help keep inventory accurate.

For retailers, an RFID system that integrates with your inventory can prevent stock errors and create better shopping experiences for omnichannel shoppers. 

💡TIP: When paired with a unified commerce platform like Shopify POS, RFID data flows into the same system that manages online and in-store sales—no manual reconciliation required.

RFID vs. barcodes

Barcodes are a retail staple for pricing and inventory tracking, but they can slow down operations; each code must be scanned individually and holds limited information. 

RFID tags offer more efficiency than traditional barcode scanning. Tags can be read from a distance, in bulk, and don’t require a line of sight—so you can scan a shipment in seconds. They store more product details, keep data safe via encryption, and can handle exposure to weather conditions, making them more durable and secure.

RFID vs. NFC

Near field communication (NFC) is a type of RFID that allows two-way communication, meaning both the scanner and the tag can send and receive data. Unlike standard RFID, which has a longer reading range, NFC works only at close range, making it ideal for contactless or tap-to-pay functionality. Think of customers tapping their card or a phone with Apple Pay at checkout. 

How does RFID technology work?

RFID systems rely on a few key components working together to track and send information to a computer system. For retailers, that means instant, accurate product visibility without any manual scanning or data entry.

The three core components: Tags, readers, and antennas

RFID systems have three main components: an antenna, a transceiver, and a transponder, also known as a tag. The part of the tag that encodes the data is called the RFID inlay. When you combine the antenna and the transceiver, you have an RFID reader, also known as an interrogator. 

There are two types of RFID readers:

1. Fixed readers: These are installed in a specific location, such as a store exit or warehouse door, where RFID tag data passes and gets captured. For example, Amazon Go uses fixed readers so customers can walk through an RF zone and check out without stopping at a register. 
2. Mobile readers: These are handheld devices that can be carried anywhere.

Hardware costs continue to decline, and the hardware mix is shifting. Tags represent roughly 41% of total RFID spend, while antennas account for just under 8%, according to Global Market Insights. 

Once you have the RFID equipment, the tracking process can be broken down into the following phases:

1. An RFID tag is attached to an object, such as a product, animal, or person.
2. The tag’s microchip stores a unique identifier or other data.
3. An antenna identifies and sends a signal, which powers the nearby RFID tag.
4. The tag transmits its data back to the antenna.
5. The antenna picks up the data stored on the RFID tag and sends it to a reader.
6. The reader connects wirelessly to the antenna and receives the information stored on the RFID tag.
7. The reader interprets the data and sends it to a host system or database for storage and evaluation.

Active vs. passive RFID tags

There are three common types of RFID tags:

1. Active RFID tags: Have their own power source and can transmit data over 100 meters or more. Best for tracking asset location or logistics improvements. 
2. Passive RFID tags: Don’t have a power source; they rely on the reader’s signal for power. That means their read distance is shorter (close contact to up to 25 meters). These tags also operate at different frequencies, which impacts range: the higher the frequency, the farther the scanning range.
3. Semi-passive RFID tags: Work like passive tags but include a battery to extend their range. 

Passive tags remain the most common choice because they’re small, lightweight, affordable, and last more than 20 years. And since passive tags are low-cost and disposable, suppliers often attach them to product cases that get discarded after unpacking.

Understanding RFID frequencies (LF, HF, and UHF)

RFID tags operate in one of three frequency bands. Each has its sweet spot for range, read speed, and material tolerance. 

Use LF or HF when items contain liquid or metal and only require short-range reads. Choose UHF for rapid, multi-item scans at distances of several meters to maintain accurate real-time inventory counts.

What is RFID technology used for?

RFID technology is used in industries like healthcare, automotive, consumer packaged goods (CPG), aerospace, and transportation. In retail settings, RFID uses include the following:

Enhance store operations

RFID provides real-time inventory visibility, which helps retailers minimize stockouts, optimize shelf space, and streamline operations. 

When paired with Shopify POS, RFID automates sales tracking, returns, and restocking, which reduces labor costs and prevents retail shrink. 

And with Shopify’s unified inventory view, staff can quickly locate products, keep shelves stocked, and spend more time creating standout customer experiences.

Analyze in-store traffic patterns

RFID can track how items move throughout your store. With this information, you can learn your store’s high-traffic end caps, pinch points, and different employee and product paths throughout the day—valuable data for merchandising and store layout planning. 

Offer contactless payments

Contactless payments include any transaction completed using a mobile wallet, a contactless-enabled debit or credit card, or a key fob. 

After shopping, customers can walk through an RFID checkout, verify their identity using biometric scanners, and pay—speeding up transactions and reducing lines.

Assist stock picking

Advancements in technology make it easier to store goods vertically and still locate them quickly.

RFly, for example, created a drone that scans RFID tags and locates products inside a warehouse. If the item is stacked on a high shelf, the drone will collect it, saving time and reducing labor costs. 

Track the temperature of goods

Certain products—such as perishable goods—need to be stored at specific temperatures. Sensors within RFID product tags can monitor and log temperature. This can help ensure items are stored at safe temperatures and meet compliance requirements.

Supply chain tracking

RFID can help raise retail inventory accuracy from roughly 60% to over 98%. RFID tags support real-time inventory management, product authentication, and theft prevention by storing and transmitting data across the supply chain. This gives retailers better visibility and control over their operations.

Asset tracking

RFID automatically scans and updates asset locations in real time, reducing the potential for human error while cutting labor costs and increasing efficiency. Combined with sales data or video surveillance, RFID helps retailers detect theft, track stolen items, and even support law enforcement in recovery.

Patient tracking and safety

In the healthcare sector, RFID technology can track patients, verify identities before treatment, ensure accurate medication dispensing, secure sensitive areas, and monitor medical equipment. These uses enhance patient safety, which reduces errors and improves overall quality of care.

Access control

Beyond inventory management, RFID also strengthens retail security by restricting unauthorized access to sensitive areas such as stockrooms and warehouses. RFID-enabled badges, wristbands, and key fobs ensure only authorized personnel can enter restricted spaces, reducing theft risks and accidents.

Marketing and customer engagement 

NFC-enabled tags can turn packaging, mailers, or shelf cards into interactive experiences. Shoppers can scan or tap a tag to view a product video, read reviews, or claim a discount. Each engagement can tie to campaign analytics so teams can see how RFID-enabled campaigns lead to sales. 

How to implement RFID in retail 

1. Define your goals and scope

Write a one-sentence problem statement everyone can rally around, like “Phantom stock on our top 100 SKUs costs 4% of weekly sales,” or “BOPIS orders are mis-picked 7% of the time.”

List the systems or workflows RFID must improve, such as production flow in a plant or shelf accuracy in a store. The clearer your requirements, the easier it is to choose tag type, reader range, and software features later.

Check compliance constraints. Defense parts, for example, might still need MIL-STD-129 UID barcodes. In such cases, RFID may complement, but not replace, printed labels.

2. Choose your hardware: Tags and readers

The tags you use depend on your goals. 

• Passive UHF labels cost pennies, need no battery, and work for item-level tagging in fashion, cosmetics, and electronics.
• Active tags carry their own power, transmit hundreds of meters, and suit yard assets or returnable pallets. 
• Semi-passive tags add a small battery for greater range without the cost of fully active tags. These are ideal when you need more distance but can’t justify tags that cost $5 or more each.

Readers come next. Consider:

• Fixed portals at dock doors to automate receiving
• Ceiling mounts to watch high-shrink zones
• Handhelds to speed up cycle counts or verify BOPIS orders on the go

3. Integrate with your POS and inventory system

RFID tags create a lot of data. Your POS or unified commerce platform must be able to capture and process it in real time. 

Confirm that your operations support an enterprise resource planning (ERP) or warehouse management system (WMS) and can pull analytics from RFID events. 

Test bi-directional flows by scanning returns. For example, with Shopify POS, an item restocked on the floor should reappear online within seconds. 

4. Address potential challenges

Total cost of ownership (TCO) includes tags and readers, as well as budget for printer ribbons, network drops, maintenance, licences, etc. Run different low- to high-volume scenarios to show your finance team where the breakeven point exists. 

Plan to take steps to ensure customer privacy. Consumer-facing tags can be read by any compatible scanner after purchase, so you’ll need to deactivate or encrypt EPC numbers at checkout. Post clear signage about what data you collect.

Lastly, test before scaling your RFID system. Start in a single zone or with a limited asset set, adjust reader placement and tag frequency, and refine software rules. Only roll out organization-wide once read rates and data accuracy meet your targets.

Benefits of RFID for small businesses

The use of RFID technology in Internet of Things (IoT) implementation is growing as shoppers expect retailers to adopt the latest technology for a smarter, more seamless shopping experience. Forty-two percent plan to adopt the technology within the next three years. Let’s take a look at why. 

Improved inventory management

RFID helps retailers accurately monitor stock levels, tracking details such as quantities, models, colors, and sizes, and quickly identifying discrepancies. This prevents stock issues and cuts down on manual work, so employees can focus on sales and customer service. 

With a handheld RFID scanner, you can process multiple items in minutes, enabling faster and more frequent stock takes. RFID inventory management automates shipment receipts, triggers reorders based on live data, and enables quicker, more precise cycle counts.

Improved loss prevention

Retailers facing rising costs and supply chain disruptions have an increasing need to reduce shoplifting and employee fraud in their stores—a $112.1 billion problem. 

RFID tracks asset movement and integrates with sales and video data, giving retailers a clearer picture of shrinkage patterns so they can improve loss prevention and act quickly to recover losses. Pairing systems with artificial intelligence (AI) in retail settings offers real-time RFID inventory tracking that provides information on which item was stolen, removes it from the local inventory, and triggers automatic reorders.

Faster checkout

Checkout is one of the biggest friction points in retail, and experts predict the future of shopping may not include checkout at all. RFID is leading this shift, enabling contactless, automated payments that speed up transactions, reduce cart abandonment, and improve the shopping experience. 

Amazon Go's "Just Walk Out" system is a prime example: Shoppers use a credit card, app, or Amazon One to enter a store, grab what they need, and leave. RFID, cameras and sensors track their selections and charge them automatically, creating a frictionless, time-saving shopping experience.

Increased efficiency for buy online, pick up in-store (BOPIS)

Buy online, pick up in-store (BOPIS) is a must-have for retailers looking to bridge the gap between online and in-store shopping. It’s a cost-effective fulfillment option that saves on last-mile delivery expenses while increasing footfall to physical stores—a key strategy for improving average order value (AOV) from customers seeing additional products they want when they come in for their online purchase. 

Last holiday season, one-third of US adults used BOPIS, a sign that flexible fulfillment has become a customer expectation. 

RFID ensures retailers can deliver on BOPIS promises by providing real-time inventory visibility. Without it, stores risk selling items for pickup that aren’t actually available. RFID prevents these errors, ensuring a smooth experience for customers and staff alike.

Examples of RFID tags and technology in retail

Retailers often struggle with inaccurate inventory counts, mispicks for buy-online-pick-up-in-store (BOPIS) orders, and lost time tracking down stock.

Most retailers see RFID technology as a clear path to solving these challenges—but some innovative retailers use it for more than simple inventory management.

Not sure how radio frequency identification technology could fit into your business strategy? Here are two examples of how brands are using RFID technology to improve accuracy, speed, and customer satisfaction.

Baroque Japan

Baroque Japan, a Japanese fashion retailer, introduced an RFID-based application from RFLocus that locates and provides visibility of inventory in 150 of their 700 stores. 

The P3 Finder app enhances the retailer’s RFID system and enables employees to serve the demand for buy online, pick up in-store (BOPIS) by keeping inventory counts at each store accurate and up to date. 

Integrated with Sensormatic’s TrueVUE Cloud software, the system helps staff easily find items required for restocking in stores. Using 3D radar, it shows the item’s location at any given time.

Advanced Apparels’ RFID stock locator

Clothing wholesaler Advanced Apparel is investing in an integrated RFID solution to minimize out-of-stock situations, provide real-time merchandise location data, and improve the customer experience. The technology allows the company to track its inventory throughout the retail supply chain, from warehouse shelves to the sales floor.

The brand uses RFID to pinpoint where their goods are located within a warehouse—down to the exact rack or shelf an item is stored on. This level of visibility is a huge timesaver for brands with thousands of SKUs. In Advanced Apparel’s case, searching through 6,000 SKUs for a single item without RFID would be inefficient and costly. 

The best part? Advanced Apparel added its own direct-to-consumer website alongside its wholesale business and dropshipping partners. This illustrates how RFID supports omnichannel growth by ensuring inventory is always accurate, visible and ready to sell.

The future of RFID and retail

Relentless market growth

Analysts peg the global RFID market at about $17 billion in 2025, rising to $38 billion by 2032. This growth is driven by retailers seeking end-to-end supply chain visibility and faster omnichannel fulfillment.

More retailers are adopting RFID

Shrinkage, BOPIS accuracy, and on-shelf availability are all making RFID critical to retail operations. Seventy-six percent of retailers say they already use the tech or will within two years, and 61% say it’s on their roadmap for implementation by 2026. Item-level tagging could become as common as barcodes in the near future. 

Tag volumes and costs are going down

The volume of RFID use is driving costs down. The RAIN Alliance logged 52.8 billion UHF (RAIN) tag chips shipped in 2024, up 17% year over year.

Bulk inlay prices are trending down near the $0.05 mark per unit, making item-level tagging viable even in lower-margin categories like groceries and auto parts.

RFID and AI are becoming the default

Zebra’s latest shopper study shows retailers rank AI (50%) and RFID (42%) as their top investment priorities for the next three years. 

Old Navy is already rolling out an AI-powered RFID platform across 1,200 stores to give associates ecommerce-grade inventory precision on the sales floor.

Traceability is helping with sustainability compliance 

Corporate environmental, social, and governance (ESG) teams are using RFID data to prove product provenance and recycling rates. RAIN Alliance members rank improving supply chain traceability as the top sustainability use case, foreshadowing mandatory digital product passports in the EU and beyond.

Early movers in luxury and electronics are already tagging every unit to meet compliance and win eco-conscious shoppers.

Integrating RFID into your retail store

The retail industry is still in the early days of mass RFID adoption. Granted, the cost of implementing RFID technology is a worry for some retailers. Yet with the lower barrier of installation and the rising impact of shopper expectations, acceptance is inevitable in the coming years.

If you’re unsure, start small. Use RFID tags to locate inventory in your storeroom or warehouse. Analyze your peak shopping times for each store. And if you really want to push the boat out, create a virtual mirror that scans RFID tags and overlays what the product would look like on a customer.

Remember: Technology isn’t something to fear. When humans and RFID technology work together, merchants can save time, become more productive, and save money.