Walmart [NYSE:WMT] maintains imbedding the electronic identification tags is strictly to improve inventory management. Some critics point out that putting the tags on merchandise fringes on a violation of privacy.

Beginning August 1, 2010, clothing will be imbedded with a radio frequency identification (RFID) tag. The tags can be read with a hand-held scanner which will assist employees with the inventory and boost efficiency on the floor and in the warehouse.

Using RFID tags is a common practice for large retailers but most tags are located on pallets of merchandise and are used mostly to track inventory from factory to retail outlet. Some consumers are getting chaffed at the idea of having a tracking device in their shorts. One type of tracking device that is being implemented is a passive tag that can be tracked by anyone with a scanner tuned to the correct signal. The tag can be removed from clothing by the consumer, but the device will continue to be trackable even if it sits in a trash can or dumpster.

Once the large retailers such as Walmart start to initiate a program such as RFID tags other retail outlets usually follow suit. In some cases it is for control that the big retail outlets, like Walmart, have over the suppliers. It may also be that retail stores draw from the same supply network as Walmart so the clothes will have tags installed. Other retailers such as JC Penny and Bloomingdale’s have also begun to manage their inventory levels with smart tags.

Privacy advocates are worried that the smart tags are just another way for big business to glean personal information from consumers. A RFID tag could be scanned as people walk the store or tracked even outside the store to see what else the person has purchased.

Even if the original purpose of RFID tags is to track inventory and to increase efficiency, there will always be someone who will use the tool, not for its intended purpose, but use it for personal gain and fraudulent activity.