Walgreens' Shelf-Tag Price Problems Draw Another Lawsuit

Walgreens (NYSE:WAG) is in trouble over pricing discrepancies for the third time this year. On Aug. 27, the Missouri attorney general sued the 7,800-drugstore chain, claiming that undercover investigators were charged more than shelf tags said they should for more than 20 percent of the items they bought in tests at Walgreens stores in five Missouri cities. That's after a $1.4 million January settlement in California over pricing issues in the San Francisco Bay area and a $300,000 settlement in March in Wisconsin in a similar case.

At a certain point, this begins to smack of sloppiness, and not just at the level of store management. Yes, that's likely a problem, since one of the most common reasons for pricing problems is that shelf tags haven't been updated. But this is now a recurring issue in three separate states. That makes it time for Walgreen's IT to start looking for technology solutions that will be cheaper than trying to get store managers to do their jobs. (That is what store technology is for, right?)

The Missouri lawsuit is a warning sign even if Walgreens manages to talk its way out of any penalties. The Missouri AG's office sent undercover investigators into eight Walgreens stores in five Missouri cities—St. Louis, Kansas City, Springfield, Jefferson City and Osage Beach—in June and July. Of the 205 items they bought, they were charged the wrong price for 43 of them.

Examples: Muscle Milk was supposed to be $6.99 with a rewards card (which the investigator used). The POS charged $8.99. Lipton tea was supposed to be $1.90 off, but the full price was charged. Oreos were marked as $3.29 each or two for $6, but rang up as $4.19 per package.

It's pretty hard to buy some of the accusations that Missouri AG Chris Koster made in his press conference last week—"This is a business practice that is consciously intending to steal from sick people that go into Walgreens, from old people that go into Walgreens" sounds like it's left over from the reelection campaign Koster just finished. If those products had the right shelf tags, those customers would have paid just as much.

But politicians' rhetoric aside, a 20 percent error rate is crazy. Koster cited outdated price displays, multiple prices displayed, loyalty discounts and clearance bin items as the biggest sources of problems, and almost all of that sounds like it comes down to shelf tags that weren't updated. (Some could also be POS problems, in which case IT has a whole different set of problems it should be scrambling to fix.)

How can IT deal with shelf tags that aren't updated? The expensive tech solutions—electronic shelf tags, shelf tags with RFID stickers that announce when they're outdated—aren't likely to find a friendly hearing from the CFO, at least not until a lot more zeroes start appearing at the end of those fines.

The only thing IT has any control over is the shelf tags themselves, which are typically transmitted to stores electronically and printed on-site. There's a good chance that those tags don't have price-expiration dates encoded into the bar codes. But what if they did? Then a handheld reader could let a manager or associate walk down an aisle, running the reader along each row of shelves—and shelf tags—and confirm that they've all been updated.

Of course, that's useless if the store staff doesn't do it. But if the reader has to upload a report every week after the shelf tags have been updated, that's something IT can confirm. No report? Red flag. Report that shows outdated shelf tags? Red flag. Report that shows multiple scans every week because the first pass caught outdated shelf tags? That's a store management problem, but as long as the end result is successful, that's more like a yellow flag.

As solutions go, adding one handheld scanner per store (which might just mean reprogramming the software for a scanner that's already there) is inexpensive. It's that much more cost effective if it shuts down the string of bad-pricing lawsuits. Eventually, between fines, settlements and bad publicity, they're going to start costing Walgreens real money—and a cheap IT solution certainly beats paying out all those zeroes.