Debate returns on item pricing rules

January 28, 2011
| By Pete Daly |
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Gov. Rick Snyder opened a can of worms in his State of the State address, one that Michigan retailers have long wanted removed from their shelves.

Snyder’s characterization of the Michigan item pricing law, or IPL, as a “relic” of times past that costs consumers and ought to be dumped thrilled retailers statewide, along with others who see too much government regulation hampering business.

“Hundreds of thousands of dollars are spent by each retailer every year to pay for the labor and materials to put a (price) sticker on each item,” said Christopher J. Predko, a partner at Warner Norcross & Judd in Grand Rapids who has advised retail businesses on details of the law.

“To some extent, the law is kind of a hidden tax that consumers don’t see,” added Predko. “It’s certainly an added cost to the retailers, and the idea is always that any added cost ... is somehow going to trickle down to the consumers.”

“I would expect the converse to be true: that if there is a savings, that would trickle down to consumers also,” said Predko.

The Michigan Retailers Association last week publicized research that suggests that without the IPL, Michigan consumers could have saved $2.2 billion in 2010.

That figure was arrived at by the Anderson Economic Group LLC in East Lansing, which had been commissioned by the MRA to do the research. The report was released by Anderson Dec. 11 under the title “Michigan’s Item Pricing Law: The Price Tag for Retailers and Consumers.”

Failure to abide by the law has cost some retailers big money. In 2006, Walgreen’s paid the state a $550,000 fine following a joint investigation by the Michigan Department of Agriculture and the Attorney General's Consumer Protection Division, according to consumeraffairs.com. In April that year, the state settled an item-pricing case with Wal-Mart for $1.5 million.

The Anderson report states that only eight states have “any form of an IPL, and Michigan’s is by far the most burdensome. Michigan is the only state that still requires a price label to be placed on nearly every consumer item, which creates unnecessary costs for both businesses and consumers, and yields little or no benefits that are not otherwise afforded to consumers in other states.”

The IPL law, which took effect in 1978, was passed in 1976 when “barcode scanning technology was in its infancy, and consumers were weary of being overcharged” due to technical failures, according to the Anderson study.

“Clearly, we don’t have that problem anymore,” said Predko.

Predko noted that stores he has been in have prices clearly marked on shelf tags, and now some stores also have scanners in the aisles where shoppers can scan a product’s barcode to confirm the price.

“I don’t think that consumers are without any guidance as to how much the item is going to cost them,” he said. He indicated they could also use cell phone cameras to remind them of the price on the shelf tag when they go through check-out.

Predko said it boils down to a question: “Is there a real problem in Michigan, where retailers have one price advertised out in the store and another price is charged higher at the register? And I’m not so sure that’s true.”

Predko said his retail clients do internal audits of their price scanning systems and find them accurate “98 percent and up.”

The Anderson study notes that “some say the IPL creates or saves retail jobs, but retailers we spoke with reported that their Michigan staffing numbers are similar to those in non-IPL states, and that in Michigan they allocate less time to customer service and other value-added activities due to IPL related labor requirements.”

“Census data further shows that retailers in Michigan have ratios of employees per establishment and employees per sales that are in line with other states. This evidences that the IPL is not causing Michigan retailers to hire more workers than what retailers in other states do,” the report states.

Elimination of the IPL will “provide the retailers with flexibility and freedom from the current requirements, so they can devote their labor to some better customer service or more meaningful jobs around the store,” said Tom Scott, senior vice president at the Michigan Retailers Association.

Electronic shelf labels are a new technology making an appearance in retail, but “this 30-year-old law prevents Michigan retailers” from using it, according to Predko. “It’s not cost effective for them to use it because they also have to price each item individually, so they don’t use it.”

The Anderson study supports Predko. It states that with the IPL requiring Michigan retailers to allocate labor and capital toward item pricing supplies and activities, there is less opportunity for them to invest in new technologies that can benefit both the retailer and the consumer.”

Anderson states that most retailers it interviewed for the study reported spending$6,000 to $10,000 per year, per store, on pricing equipment and supplies.

Electronic shelf labels, or ESLs, “are becoming more widely used in states across the country, though many Michigan retailers find them price prohibitive when the mandated item pricing costs are also accounted for.” The devices use an LCD display to report the price of the item on the shelf, and can be changed quickly via wireless signals from a data base that is shared with the checkout scanners.

ESLs “offer retailers a much more efficient and accurate way of reporting prices to consumers, and alerting them of discounts,” states the Anderson study.

ESLs, according to the Canadian blog Retail Technology Trends, “have come in and out of favor over the past decade or so.” The blog is written by a technology solutions consultant employed by NCR Canada in Toronto.

The blog notes that “given the continuous reduction in the cost of electronic components and computing power, re-visiting the potential of ESLs today is a credible exercise.” The blogger writes that it can help reduce in-store labor requirements, but adds that “one of the greatest challenges of these implementations is the cost,” many of which are not evident until on-site testing is done.

Scott said that at this point, the expense of ESL probably prevents it from being in widespread use “but all technology comes down in price the more it gets used,” he said. The proposal to eliminate Michigan’s IPL is to “remove the impediments to investing in technology, whatever form it is.”

Scott said he believes action in the Michigan Legislature is “coming pretty quickly.”

The AARP, which lobbies on behalf of older Americans, has been “generally supportive of the item pricing law because historically it has provided transparency to consumers,” said Mark Hornbeck, associate state director for communications at the Michigan chapter of the AARP in Lansing.

“We are open to discussion on this. Our main concern is seeing that pricing information is disclosed and consumers are protected,” he added.

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