January 23, 2008
NRF Afterthoughts: Is it time for the electronic shelf label?
By Bill Bittner, President, BWH Consulting
OK, one of the fun things to do at NRF is walk through the back area of the show where are all the new vendors in the 10 by 10 ft. booths are introducing their great new retail inventions. Sometimes you see things here that the big guys catch on to later. Better yet, sometimes you see solutions to a problem that the big guys have been struggling with forever.
W5 Networks is a startup company that actually debuted their Electronic Shelf Label (ESL) in the fall of 2006. At that time they published a $3.50 to $5.00 price point for the ESL, although they were more coy at NRF. They cited volume as a big factor in determining the final price and were not willing to actually state one.
I’ve been involved in a couple ESL implementations from the retail side. Besides the cost factor, environment has always turned out to be a challenge. Everything from ballasts in the lighting to electrical noise from refrigeration motors would impact our ability to communicate with the tags. W5 claims their proprietary and patent pending communications technology addresses those past issues and provides a robust communications network in the supermarket environment. Anyone considering them should put this to serious test. If you have tested them, it would be nice to hear some results.
The physical tag is well protected. It can be installed without it, but a tool is required to remove the ESL from the shelf edge. It fits into standard molding without the need for special overlays. The fit is snug, meant to survive the banging carts down low and the curious 3-year-old at seat height. The electronics are watertight, but there is a slot for holding a shelf talker whose presence is sensed by the tag and conveyed to the central server. (This leads into the really neat features…)
The tag supports two-way communications, an electric eye, and temperature sensors. This means the tag can send a message to the server for a “bed check” to confirm that all tags are working. It will also signal if an employee puts a finger over the electric eye to signal they have done something, or if the ambient temperature moves outside a specified range. An LED can be used to signal store employees that action is needed.
Discussions Questions: Do you think it is time for ESLs to be generally accepted? What neat ways can you think of for using some of this tag’s capabilities? What price point do you feel is necessary for electronic shelf tags provide ROI?
[Author’s Comment] I don’t know if this is finally the solution for shelf tags. I was a little concerned about the space and format of the item description information that was printed and attached to the ESL module. There are also legal constraints on descriptive information based on various unit price label legislation which can vary by government jurisdiction.
I know, when working at store level, it is a real challenge to make sure the descriptive information that is mounted on a module is for the proper item. Even in W5’s small display booth, someone had put the wrong insert in a module that was placed over a different item. This would mean the wrong price displayed for the consumer. Store people have to be well trained and there should be a process for verifying the association between label module and items. Probably most important, new employees who are doing module maintenance must be trained.
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Electronic shelf labels are long overdue. I remember a terrific installation of ESLs in an Istanbul grocery in the late 1990s, so it’s clear that decent solutions have been available for very long time.
Several major American chains can’t achieve decent compliance taking the merchandise out of the stock room or building displays. The moral of the story: if the store folks don’t complete restocking or display tasks promptly, are they updating shelf labels promptly? And if the retailer automates shelf labeling, doesn’t that create time for tasks that can’t be automated? All too often, a technology ROI calculation only includes task labor saved, not gross margin lost because of inadequate time for alternate activity.
ESLs are a solution trying to find a problem. The key here is to use the shelf label, electronic or not, as a way to record and communicate information for both employees and consumers.
Go into any store, and without follow-up from an employee, you can find the 3 dreaded words of retail: out-of-stock.
No tag without a “smart” system will offer any benefit unless an employee stops and uses it–either at the shelf or on a computer. Either way counts need to be done to confirm scanned information vs. shelf information, shrink as a percent of sales, and OOS on the shelf vs. OOS in the store. ESLs are not a solution to this, since the problem still rests with proper human intervention.
Deployment depends upon several factors that are important to retailers: cost, ease of use, and competitive advantage. The tags may make it easier to change prices which could be a competitive advantage or may make it easier to have timely and accurate prices displayed. However, if the cost to use the tags is higher than having someone make the changes manually (even if there is a delay) or the use is difficult enough to make accuracy a problem, then they still are not ready for widespread use. The product has to answer the “what’s in it for me” test of store managers.
Ok, so like myself, I am sure everyone wants this technology to finally break through. For as long as I have attended NRF, I can remember shelf edge technology that promises quicker, better, and more accurate shelf labels. A shelf label costs about 3 cents to create and with normal labor, time and motion studies typically show that about 60 labels can be hung in an hour. So that’s about 16 cents per label. There are numerous ways that ESL can be used. This however does not change the fact that in a typical large format store, there are let’s say 80k to 120K items. If–and that’s a big if–every item could have an ESL (including peg items) and the ESL price were at $3 per tag…the math is not favorable.
There are thousands of items that have one or two price changes a year. That would mean that some items would take 23 years to see a return on the investment. Further, retailers can always think of better ways to use $360k. For everyday low price retailers who only change the price once or twice a year…you can see that the dollars are high and the return is very very very long.
I just don’t personally see the math working out. Great idea, love it, want it, but the price per tag needs to be somewhere in the range of <$1 (all in--includes system, network, etc.) in my mind to cause retail to move from "this is interesting" to "this is a no brainer."
ESLs have broad tentacles when it comes to things like plan-o-gram management, inventory management and computer automated ordering. However, in states like Michigan where strict item pricing laws are in effect the economics simply won’t work. It may make the shelf label accurate but it won’t help in changing the sticker on each and every can.
Some states have allowed stores with ESLs to be exempt on item pricing but that has not yet been tried in the Great Lake State. There are too many press opportunities for the attorney general and governor at election season for them to give retailers a break. Never mind the real benefits to the consumers.
As Kevin astutely points out, microeconomics so far seem to overwhelm other practical considerations for ESLs. Yes, it seems that escalating requirements for compliance due to automated planogramming would make electronic tags more desirable over time, but I think the jury is still out as to whether the tags would reduce implementation complexity or add to it.
Thinking more broadly, there may be multiple reasons to electronically network the shelf-edge. In-store advertising devices come to mind. If these were to ride the same network as electronic shelf labels and generate incremental income, the overall economic calculus might shift in a favorable direction. Another form of automation–so called “smart shelves” that continuously detect and track stock positions–has also been proposed.
In the end, however, these gee-whiz innovations too will be constrained by the underlying economics. It’s not that we can’t picture it–it’s just that we can’t yet justify it.
I think ESL’s fate is tied to the fate of pricing and planogram (POG) solutions. As these solutions become more widely adopted in grocery–and I mean detailed planograms, not the generic ones that stores have to adapt to their specific circumstances–then the need for electronic communication of price all the way to the shelf will become more important.
Pricing and POG solutions have the ability to create unique shelf sets–the combination of which items across how many facings at what price at each store. As the shelf set requirements become more sophisticated, the case can clearly be made to “digitize” it all the way to the shelf–exactly where ESL tags come in.
Smart shelf tags are long overdue, but I’m not yet convinced that ESLs are the solution. Planogram position, margin and warehousing information can easily be added to existing tag systems to communicate important information to stores.
Once store personnel learn to use this information effectively there is value to be gained from adding real-time information, such as quantity on order or in transit, to the ESLs in real time.
The big question for retailers is–can you afford them and what advantages do they offer?
The question for consumers has always been–can they read the product description, size, price and unit price as clearly with an electronic shelf tag as with a paper tag? If not, I wouldn’t suggest a change.
I hate to add comments so late after a post but there are a few interesting things to point out:
1. It’s hard for retailers to spend millions on a price optimization software package when it becomes too expensive to execute. Making price changes to realize penny profits could be achieved with an electronic delivery system.
2. Anyone been to a French retail store lately? Electronic shelf tags on every item in a 750,000 sq. ft. store must be making some sense to someone.
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Electronic shelf labels are long overdue. I remember a terrific installation of ESLs in an Istanbul grocery in the late 1990s, so it’s clear that decent solutions have been available for very long time.
Several major American chains can’t achieve decent compliance taking the merchandise out of the stock room or building displays. The moral of the story: if the store folks don’t complete restocking or display tasks promptly, are they updating shelf labels promptly? And if the retailer automates shelf labeling, doesn’t that create time for tasks that can’t be automated? All too often, a technology ROI calculation only includes task labor saved, not gross margin lost because of inadequate time for alternate activity.
ESLs are a solution trying to find a problem. The key here is to use the shelf label, electronic or not, as a way to record and communicate information for both employees and consumers.
Go into any store, and without follow-up from an employee, you can find the 3 dreaded words of retail: out-of-stock.
No tag without a “smart” system will offer any benefit unless an employee stops and uses it–either at the shelf or on a computer. Either way counts need to be done to confirm scanned information vs. shelf information, shrink as a percent of sales, and OOS on the shelf vs. OOS in the store. ESLs are not a solution to this, since the problem still rests with proper human intervention.
Deployment depends upon several factors that are important to retailers: cost, ease of use, and competitive advantage. The tags may make it easier to change prices which could be a competitive advantage or may make it easier to have timely and accurate prices displayed. However, if the cost to use the tags is higher than having someone make the changes manually (even if there is a delay) or the use is difficult enough to make accuracy a problem, then they still are not ready for widespread use. The product has to answer the “what’s in it for me” test of store managers.
Ok, so like myself, I am sure everyone wants this technology to finally break through. For as long as I have attended NRF, I can remember shelf edge technology that promises quicker, better, and more accurate shelf labels. A shelf label costs about 3 cents to create and with normal labor, time and motion studies typically show that about 60 labels can be hung in an hour. So that’s about 16 cents per label. There are numerous ways that ESL can be used. This however does not change the fact that in a typical large format store, there are let’s say 80k to 120K items. If–and that’s a big if–every item could have an ESL (including peg items) and the ESL price were at $3 per tag…the math is not favorable.
There are thousands of items that have one or two price changes a year. That would mean that some items would take 23 years to see a return on the investment. Further, retailers can always think of better ways to use $360k. For everyday low price retailers who only change the price once or twice a year…you can see that the dollars are high and the return is very very very long.
I just don’t personally see the math working out. Great idea, love it, want it, but the price per tag needs to be somewhere in the range of <$1 (all in--includes system, network, etc.) in my mind to cause retail to move from "this is interesting" to "this is a no brainer."
ESLs have broad tentacles when it comes to things like plan-o-gram management, inventory management and computer automated ordering. However, in states like Michigan where strict item pricing laws are in effect the economics simply won’t work. It may make the shelf label accurate but it won’t help in changing the sticker on each and every can.
Some states have allowed stores with ESLs to be exempt on item pricing but that has not yet been tried in the Great Lake State. There are too many press opportunities for the attorney general and governor at election season for them to give retailers a break. Never mind the real benefits to the consumers.
As Kevin astutely points out, microeconomics so far seem to overwhelm other practical considerations for ESLs. Yes, it seems that escalating requirements for compliance due to automated planogramming would make electronic tags more desirable over time, but I think the jury is still out as to whether the tags would reduce implementation complexity or add to it.
Thinking more broadly, there may be multiple reasons to electronically network the shelf-edge. In-store advertising devices come to mind. If these were to ride the same network as electronic shelf labels and generate incremental income, the overall economic calculus might shift in a favorable direction. Another form of automation–so called “smart shelves” that continuously detect and track stock positions–has also been proposed.
In the end, however, these gee-whiz innovations too will be constrained by the underlying economics. It’s not that we can’t picture it–it’s just that we can’t yet justify it.
I think ESL’s fate is tied to the fate of pricing and planogram (POG) solutions. As these solutions become more widely adopted in grocery–and I mean detailed planograms, not the generic ones that stores have to adapt to their specific circumstances–then the need for electronic communication of price all the way to the shelf will become more important.
Pricing and POG solutions have the ability to create unique shelf sets–the combination of which items across how many facings at what price at each store. As the shelf set requirements become more sophisticated, the case can clearly be made to “digitize” it all the way to the shelf–exactly where ESL tags come in.
Smart shelf tags are long overdue, but I’m not yet convinced that ESLs are the solution. Planogram position, margin and warehousing information can easily be added to existing tag systems to communicate important information to stores.
Once store personnel learn to use this information effectively there is value to be gained from adding real-time information, such as quantity on order or in transit, to the ESLs in real time.
The big question for retailers is–can you afford them and what advantages do they offer?
The question for consumers has always been–can they read the product description, size, price and unit price as clearly with an electronic shelf tag as with a paper tag? If not, I wouldn’t suggest a change.
I hate to add comments so late after a post but there are a few interesting things to point out:
1. It’s hard for retailers to spend millions on a price optimization software package when it becomes too expensive to execute. Making price changes to realize penny profits could be achieved with an electronic delivery system.
2. Anyone been to a French retail store lately? Electronic shelf tags on every item in a 750,000 sq. ft. store must be making some sense to someone.