CE and the Dollar

From the desk of Lee Distad's Professional Opinion:

Regarding the recent surge in the strength of the Canadian Dollar: there’s only one place in the daily newspapers where there are more poorly thought out arguments about economics than the editorial pages, and that’s the letters-to-the-editor page.

The pundits, whether professional or amateur, who are crying foul about price disparity on consumer goods north of the border mean well, but I have yet to see a single diatribe where the writer demonstrates an understanding of the consumer marketplace. To be honest, that might be explained by the fact that every day that I skim the editorials and the letters, I invariably come upon a plea along the lines of “shouldn’t the government be legislating price controls to protect us?” Usually, the paper ends up getting hurled across the room, so I might have missed one or two.

To keep this blog entry simple, let’s examine the two primary factors that govern what goods are sold for: volume and time. There’s a whole host of other factors, but these two are the big ones. I recognize that most people reading this have considerable experience in our industry, and know all this already, but I’ve been building up a head of steam for weeks and need to get this off my chest.

Keen eyed readers will have noticed that foreign exchange isn’t one of the top two reasons. That’s because of time. The products on the shelves this fall were ordered and the contracts signed anywhere from six months to a year or more ago; and the distributors and agents agreed to pay a price that was dependant on a Canadian Dollar that was anywhere from 80 to 90 cents U.S. at the time the deals were made. The product sitting on shelves and in the warehouses wasn’t paid for at par, so for prices to line up with what can be seen across the border, it would be Canadian businesses taking it on the chin. Does anybody reading this think that’s fair?

Speaking of fairness, it may not seem fair that goods cost more in Canada, but a large part of that comes down to volume. The bottom line is that the United States has a population of roughly 300 million people, and Canada has only a little more than a tenth of that. Whether retail store buyers are purchasing seasonal programs for apparel, electronics, or anything else, the amount that Canadian retailers and their suppliers will purchase from overseas manufacturers will never, ever come close to the consumption of our neighbour. As a result American companies pay less for their goods than do Canadian companies because of the volume discounts that they receive. It seems pretty simple.

Or maybe it’s not as simple as that. This week Wal-mart fired the first shot by announcing that they would sell HALO3 at the same MSRP in Canada and the U.S. In one stroke, Wal-mart scored bonus points with consumers, and made every other retailer look bad for not jumping to the pump.

I guess that you could say that there’s a third key factor in pricing: power politics. I was talking with a friend yesterday who represents a number of electronics manufacturers. He was keen to find out if I had heard rumblings of any vendors or retailers getting ready to announce exchange-rate related markdowns on electronics. To hear him tell it, our industry is currently in a Spaghetti Western-style showdown in the middle of Main Street, waiting to see who’s going to draw, or blink, first. The holiday selling season is typically a time for pricing silliness anyway: during a two week span back in October 2002, I had to re-price all the DVD players on my shelves seven or eight times as vendor-driven markdowns were communicated to us. I think that the flat-panel bloodbath of last year is still fresh in our memories.

I’ve got a niggling feeling that we may see a price war this Christmas that makes last year look mild by comparison.

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RFID: Tag, You're It!

Imagine walking through the grocery store, filling up your buggy with a week’s worth of goodies, then simply pushing the buggy over a sensor and voila: your total pops up on-screen instantly. Pull out your debit or credit card, punch in the digits, and off you go. No nasty line-ups. No price-checks. Is this possible? Sure it is. Ever heard of RFID?

RFID stands for radio frequency identification, and is essentially the future of bar-coding. Each RFID “tag” contains a microchip and tiny radio antenna that can be attached to products to transmit a unique, identifying number to an electronic reader. This reader in turn links to a computer database where information about the item is stored. There’s no doubt that RFID offers many advantages over typical bar-coding. It does not require line-of-sight in order to scan an item; multiple items can be scanned at a time; and information can be read, written, and stored digitally.

RFID can mean greater convenience for consumers at the check-out, but it also has advantages for businesses. Think of RFID as a virtual consultant that can analyze business practices, than advise what can be done differently in order to better save time, money, and resources. If you can account for every pallet of product, or even each individual item, at all times throughout the supply chain, imagine how easy it would be to pinpoint where improvements can be made! Is your distributer taking too long to deliver product? Is inventory not being properly recorded? Is staff taking too long to find the items they need? In some of Hewlett-Packard's implementations of RFID, the company found that staff spent 1/3 less time simply looking for things they couldn’t find.

An RFID pilot was conducted recently in Canada’s grocery industry, and the results were promising. The grocer was able to track where each box of product was at any given time, and understand inefficiencies in the process. For instance, product was ordered when inventory was already in stock; boxes were taken off pallets and put right onto the floor; and items weren’t being shelved, even when they were available. A recall was simulated during the pilot, and it took the system just five minutes to locate where every single box of that particular product went: this process would typically have taken days!

“There is no system today that allows you to get such a granular level of data and feedback,” explained Shai Verma, Director of RFID at IBM Canada, during a summary of the pilot at the 2007 Wireless and Mobile Expo in Toronto. “[RFID] decreased out of stock issues to zero.”

Verma also gave some great real-world examples of RFID implementation: the Great Wolf Lodge in Niagara Falls, an indoor water park, uses RFID bracelets in place of hotel room keys; while Pfizer Pharmaceutical Co. has equipped every bottle of Viagra with an RFID tag to confirm its authenticity.

Of course, there’s still a lot of work to be done in order to fully deploy RFID. For one, it is highly expensive. Who will incur the costs of each tag? The manufacturer? Distributer? Retailer? Will the price of products be increased to compensate for the cost of tracking them? Also, what level of RFID is necessary to each business? Do you really need to tag every single item in a box? Each box? Or each pallet of boxes? How sophisticated a system does one need? Is theft a major concern, or a minor one? Does one use passive RFID, which can only track within a limited distance; or active, which can track a product through much farther distances? These are all questions that need to be answered by all parties involved in order for companies to confidently take the leap toward RFID.

“Eventually, the potential of RFID will be realized,” said Verma. He predicts that 2009 will be the year of RFID.

Even so, future RFID developments are already in the works. According to Victor Garcia, CTO at HP, the company is working on what it deems to be “second generation” RFID. Called Memory Spot, this 1 x 1 mm chip will have a CPU built right into it that can store up to 2 MB of data, and will be 15,000 times faster than current chips. Each chip could essentially store a product’s “DNA”, including things like set-up videos, photos, schematics, and specifications.

It sounds like it’s straight out of a movie, but believe it or not, technologies like RFID are the way of the future.