The European radio frequency identification (RFID) market is set to explode, with forecasts suggesting it will be worth US$3.2bn in 2017, up from $289.6m in 2011.

A report, by Frost & Sullivan said key growth areas will be apparel and footwear, perishables, jewellery and personal care.

The enhanced benefits in various business processes across the retail supply chain will continue to drive RFID adoption. Advantages include better inventory management, improved operational efficiency, reduced labour, greater visibility, information accuracy, higher sales, and superior customer service.

However, issues pertaining to data privacy and the lack of understanding about return on investments (ROI) threaten to slow down the pace of market expansion.

"The increased prominence of item-level tagging will further augment opportunities for RFID across retail applications," said Frost & Sullivan analyst Ram Ravi.

"Tags and hardware (readers and printers) are expected to witness considerable increase in demand as a result of the rising preference for item-level tagging."

However, the lack of clarity about integrating RFID with existing IT systems is also inhibiting adoption rates.

"Issues related to integration can be attributed to the skill level of system integrators, the existing infrastructure, and interoperability," explained Ravi. "While the impact of this challenge is likely to be limited in the short-term as the adoption of RFID technology in the retail industry is still in the early stages, it is expected to intensify as RFID adoption becomes more widespread."