THE ESL CONNECTION

Michael Garry, with reporting by Julie Gallagher

If retailers are becoming more interested in price optimization software, can electronic shelf labels (ESLs) be far behind?

Though they have been around much longer than price optimization, ESLs, plastic LCD pricing modules that replace paper shelf labels, have so far managed to elude widespread adoption by food retailers, despite allowing price changes to be controlled electronically from the back room. Cost of the tags, still in the $5 to $6 range, is the main reason.

In fact, one of the biggest users of ESLs (outside of Connecticut, where ESL-using food retailers are exempt from item pricing) are fashion retailers like Kohl's Department Stores, Menomonee Falls, Wis., which uses them to keep track of shoe prices.

But price optimization and ESLs are regarded by some observers as a very good match because the former may involve many rapid price changes while the latter makes it far easier to execute those changes. "Price optimization is helping to drive interest in ESLs and overcome the ROI hurdle," said Wyatt Alston, solution sales specialist, RealPrice, NCR, Atlanta.

Safeway U.K. was one food retailer that combined NCR's ESLs and price optimization software from Khimetrics, Scottsdale, Ariz., in a few test stores a few years ago, but has discontinued the program since being acquired by Morrisons last year.

Other retailers may also make the price optimization-ESLs connection, observers said. "There comes a point where if you change price often, it becomes a cost issue, and ESLs do become a viable partner," said Hung LeHong, research director, Gartner, Stamford, Conn. The pairing will be especially relevant to retailers who adopt a "dynamic pricing" model, such as markdown optimization, in the belief that "it's exciting to hunt for a super-duper price," he added.

However, Greg Buzek, president, IHL Consulting, believes that cost will continue to be the determining factor in ESL adoption. "Retailers will adopt them once they cost below $3.50," he said. "That is the magic number."