Pricer’s E-Ink Electronic Shelf Labels

In an article last week titled “Investing in Electronic Ink (E Ink)“, we discussed how the decline in sales of e-readers is affecting demand for E Ink but there are still many other disruptive applications for this technology. One of these applications is “electronic shelf labels (ESLs)” for use in retail “bricks-and-mortar” storefronts. ABI Research issued a report recently titled “Next-Gen Retail: Electronic Shelf Labels” in which they made the following forecast:

Over the next 5 years Electronic shelf labels (ESL) are set to grow beyond retail markets in legislated countries, with revenues increasing six fold to almost US$2 billion by 2019.

In this report, Sweden-based Pricer is identified as one of the two major players in this space today, dominating traditional ESL markets.

About Pricer

Founded in 1991, Swedish company Pricer is engaged in providing electronic display and information systems to the retail industry. Pricer trades on the NASDAQ OMX in Stockholm (STO:PRIC-B) with a current market cap of around $60 million USD. Today the Company has over 10,000 installations in over 200 different retailers, and 100 million electronic shelf labels installed in over 51 countries. Pricer’s customer portfolio is mainly comprised of European retailers; Carrefour, Seven and I, E Leclerc, Unimat, Belgacom, and Bosch

Pricer’s Electronic Price Label System

The product sold by Pricer offers a very compelling value proposition to retailers. Traditional “bricks-and-mortar” retailers currently use paper price tags on shelves in order to display prices to consumers. The process of updating prices involves a manual task in which you would replace the current paper price label for a product with an updated paper price label. Since the average supermarket contains over 43,00 products, assuming 30 seconds to change each tag it would take you 9 weeks to change all the prices in the store assuming you worked a full-time 40-hour workweek. Pricer provides a solution to this problem with their electronic price tags that allow you to change thousands of prices in mere seconds:

 

Electronic_Price_Label

The system works through infrared signals sent via central communication devices mounted on the ceiling. The price labels have the ability to “talk back” to the communicator to confirm the price changes which ensures accuracy. This opens the door to all kinds of additional value adds such as smartphone applications, on-the-spot mobile payments, digital coupons/loyalty, customer analytics, and most interestingly dynamic pricing. Wouldn’t it be nice to reduce the price of those day-old vegetables without having to go slap a 30% off sticker on them? Retail stores could adjust their pricing on a daily basis using intelligent information from their supply chains. Too many crates of baby formula in the warehouse? Slash the price for a one-day sale and use the product as a loss leader. The opportunities this sort of solution opens up and the pain points it would eliminate make it seem very likely this will eventually be the norm for bricks-and-mortar retailers.

Investing in Pricer

In 2013, Pricer had sales of $72 million USD with a gross profit of $17.5 million USD. Over the past year, however, Pricer’s shares have lost -38% of their value with a current price of 68 cents USD, just off their 52-week low. One reason for this decline may be the weak revenue trend.  While revenues seemed to be on a good trajectory up until 2011, the last two years revenues and profits have been on the decline (below numbers in Swedish Krona):

Pricer_Sales_Profit

This recent fall in revenues could have been related to problems with management. The previous CEO, Fredrik Berglund, resigned from Pricer November of last year with the CFO stepping in as a temporary CEO. A new CEO, Jonas Vestin, will start with Pricer this month. Pricer also strengthened their management team this past June with a new Director for the Americas and a Sales Manager for Asia. In their year-end financial report for 2013, Pricer cited their main challenges for 2013 were “the continuing economic downturn in Europe”, “a customer preference for graphical labels”, and “temporary problems with suppliers for new product lines”. The CEO stated that graphic labels have increased sharply in value as retailers want the ability to communicate other information than just price such as product information and promotional offerings.  His remarks implied that Pricer is capable of providing graphical labels but not at a volume that can currently meet demand.

In our next article on electronic ink investing opportunities, we’ll take a look at the other biggest player in the electronic shelf label space, a publicly traded French company called SES. In the meantime, U.S. investors who want to invest in Pricer (STO:PRIC-B) will need to sign up for an Interactive Brokers trading account.

Most people don't know that Interactive Brokers is the biggest online brokerage firm in the U.S. and the only firm we know of that allows you to buy stocks directly on 125 different foreign stock exchanges. We've used IB for many years as a cheap platform to exchange currency, for trading stocks on foreign exchanges, and for trading shares in U.S. stocks. Click this link to get started.

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