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January 2, 2009

Re-labeling products costs retailers millions

A sudden VAT cut and record levels of pre-Christmas discounting have left retailers footing the bill for maintaining up-to-date prices on labels or at the shelf. Minimizing these costs could be the difference between whether or not a retailer goes bust in 2009, and electronic shelf labeling will enable retailers to change the prices at the shelf at zero cost.

By CBR Staff Writer

Retailers could have saved million of pounds this Christmas had they invested in electronic shelf labeling technology. Over the Christmas period, it is not unusual for a mid-sized grocer to makes changes to upwards of 12,000 price points a week, and those utilizing electronic shelf labeling could be saving over GBP15,000 a month.

The cost of pricing is a burden that retailers can ill afford, and the situation is worsening. UK retailers have executed an unprecedented number of product price changes across their stores this Christmas, as a sudden VAT cut and record levels of pre-Christmas discounting have left retailers struggling to maintain up-to-date prices on the labels or on the shelf.

The impromptu 2.5% VAT cut in the UK, which came into effect on December 1, left retailers with just days to make the internal preparations required to pass on the tax cut to expectant consumers over the Christmas period. Given the short notice, most retailers struggled to implement the changes in time. Although the VAT cut was intended to add a much needed boost to retail sales, the cost of updating IT systems and paper price labels has hit retailers hard, with one large UK DIY retailer claiming the VAT price changes cost its business around GBP3 million. When VAT goes back up in the new year, retailers will be faced with the same issues all over again.

During the peak trading season, product pricing costs are again an issue for retailers as pre-Christmas discounting escalates, driven by intense competition for a share of consumers’ cash-strapped wallets. Department store chain Debenhams, for example, announced in mid-December that it would offer in-store discounts of up to 50% over five days as part of its fourth sale in less than a month. Argos also held its biggest pre-Christmas sale, with an unprecedented number of lines being sold at half price.

It is not just consumers that are looking for ways to spend less. Retailers are also tightening their belts, and even those with reasonably strong balance sheets resent paying for the extra resource required for re-pricing stock, particularly during the busiest shopping period of the year, when resources are best spent focused on customer conversion.

The annual cost of making price changes within large retailers can run into millions. Price execution improvements through the use of technology can cut labor costs, improve the speed of markdown implementation and even reduce the costs related to label printing. In fact, electronic shelf labeling enables retailers to change the prices on the shelf at zero cost.

Those retailers that have already implemented an electronic shelf labeling system will be reaping the benefits of being able to update all price labels across the estate with a click of a button, but those retailers that have not, such as the DIY chain mentioned previously, will have taken a massive hit to their bottom line. The DIY and home sector is particularly unhealthy at the end of 2008, and minimizing these costs could be the difference between whether or not a retailer goes bust in 2009.

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The retail sector is notoriously unpredictable, even at the best of times, but is particularly so in this uncertain economic environment. Any technology investment will need to show immediate improvement to the bottom line. Verdict predicts it will be at least two years before retail sales recover, so snap-decision price changes will remain a feature as retailers fight to keep prices competitive. However, a two year ROI timeframe for an electronic labeling implementation that can save both time and money does not seem quite so unreasonable.


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