In more detail
What are electronic shelf labels (ESLs)?
ESLs are digital displays that replace traditional paper price tags, allowing retailers to update pricing in real time via a wireless connection to a centralized system. Increasingly adopted by large retail chains, ESLs streamline pricing operations, reduce manual labor, and enable agile, dynamic pricing strategies.
ESLs offer a range of benefits: they enable rapid price adjustments, facilitate markdowns for near-expiry items, and display key product information such as allergens and ingredients. ESLs also help minimize pricing discrepancies across shelves, point-of-sale systems, and online listings, while supporting promotional campaigns and enhancing restocking efficiency.
Potential risks and considerations
ESLs are not without risks. Technical malfunctions have, in some instances, triggered widespread pricing errors—occasionally severe enough to prompt temporary store closures. These incidents underscore the need for robust implementation strategies and well-defined contingency plans.
Consumer protection risks
ESLs raise significant consumer protection concerns, particularly around pricing practices and transparency. One major issue is the potential for price gouging, where dynamic pricing capabilities could be used to inflate prices on essential goods during emergencies or periods of high demand. This mirrors concerns seen in other industries like travel and ridesharing. Moreover, the use of ESLs in conjunction with technologies such as facial recognition or AI-driven profiling could lead to discriminatory pricing based on perceived consumer demographics, such as age or gender. These practices may not only be unethical but could also violate consumer protection laws. Inaccurate or inconsistent ESL updates may further mislead consumers, exposing retailers and brands to liability under false advertising or unfair trade practices.
Privacy risks
The integration of ESLs with data collection technologies introduces serious privacy implications. Retailers may collect biometric data, such as facial scans, without obtaining proper consent, potentially violating biometric privacy laws. Even beyond biometric data, the broader collection and use of consumer information—such as shopping behavior or demographic profiling—raises questions about data security, transparency, and consent. If consumers are unaware of how their data is being used or shared, especially with third-party brands, this could lead to regulatory scrutiny and reputational harm.
Antitrust risks
From an antitrust perspective, ESLs present multiple challenges. The use of algorithmic pricing tools can result in pricing patterns that resemble collusion, especially if multiple retailers rely on the same or similar algorithms. This could trigger investigations by competition authorities. Furthermore, the high cost and technical complexity of ESL systems may create barriers for smaller retailers, leading to market consolidation and reduced competition. Such concentration of market power is a key concern for antitrust regulators like the FTC and DOJ, who warn that it can result in higher prices, limited consumer choice, and entrenched dominance by a few large players.
Brand risks
Brands may face reputational and legal risks when associated with ESL technologies. Inconsistent pricing across store locations due to ESL errors can undermine promotional strategies and damage consumer trust. If ESLs are used to implement discriminatory pricing or coordinate pricing across retailers, brands may be implicated in antitrust or consumer protection violations. Furthermore, any association with invasive data collection practices—especially those perceived as lacking transparency or consent—can erode brand equity and provoke backlash from both regulators and the public.
Conclusion
To minimize legal and reputational risks, businesses should implement clear internal guidelines for the use of ESLs and conduct regular audits to ensure compliance. Retailers and brands must also stay alert to evolving regulations, particularly in areas where enforcement gaps may exist. Monitoring how ESLs are deployed—especially in relation to consumer protection and antitrust laws—is essential to avoid unintended violations and regulatory scrutiny.
To learn more, read our full article published on Law360, where we delve into retailers' adoption of ELS and examine the associated legal and regulatory risks in more detail.
