Choosing LED Lighting In Retail Stores For Optimal ROI

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Progressive retailers are transforming the in-store experience in response to changes in shopper behaviors and expectations, to fierce competition from online sellers and to ever changing energy and building codes. These transformations typically include a change in store lighting, which often results in a conversion to LED.  It is a sensible low risk tactic, as the newest LED systems provide an unequalled combination of light quality, controllability and energy efficiency to reduce overall operating costs.  But if retailers stop at a simple relight without taking advantage of the “smart” capabilities of modern LED systems, they’re making a mistake that could be very expensive over the life of the lighting system.

Retail operations managers are challenged with making the right lighting decision – one that meets budget expectations at purchase, during deployment and when maintained over the lifecycle of the system.  A common concern is, “How do I know that what I’m putting in won’t be obsolete in a couple of years?” Herein lies the real challenge. While retailers have a basic understanding of what an LED lighting system does, many are unaware of the advancements solid state lighting and building controls have made in the last few years that can help them address and even get ahead of upcoming changes; from dynamic tuning, to indoor positioning, to better performing LEDs that deliver a better payback.

To stay ahead of new trends, changing shopper demands and changing building energy codes, retailers should take advantage of LED upgrades not just as simple energy savings projects, but also as a means of future-proofing their operations. To achieve this requires re-thinking the payback model for a lighting retrofit.

Short Term Payback – Long Term Headaches

Most retail lighting retrofit projects are still being evaluated using a simple short-term payback/ROI model.  Total installed cost divided by annual operating savings equals payback –period.  While this may work well for a commoditized product with a relatively short lifespan, using this model for an LED conversion that could be around for 10 or more years can lead to some really poor decisions with a long-term financial impact.  Not all LED systems are created equally, and a short-sighted decision can cost millions in expenses that were unaccounted for due to early obsolescence, increased maintenance costs and inability to address future retail challenges and requirements.

There is an increasing complexity with additional technology in retail lighting systems.  New codes require additional controls capabilities, and that trend is accelerating.  In addition, Marketing and IT departments are introducing new equipment into retail spaces that can potentially create even more maintenance expense if not thoughtfully deployed.  Without a well-designed lighting system that can evolve easily to meet new demands and applications, new technology requirements can create a big headache for store managers and an even bigger headache for facilities groups.  Service calls were easy when it was about some T8 tubes or ballasts that had burned out.  Depreciating LED boards, battery-powered beacons and bad Wi-Fi routers are another thing.  The potential for complexity and increased maintenance expense increases every day as retail spaces are reconfigured to meet changing shopper expectations.

A Tale of Two LEDs: Tubes vs. Integrated LED

The evolving functionality of digital lighting systems demands a shift in thinking away from quickest payback and towards the total cost of ownership (TCO).  Below is a clear case for TCO.

In comparing LED conversion costs, LED tubes clearly have the lowest upfront cost and will typically have the fastest short-term payback – so using the simple payback model, tubes would be the way to go.

However, when you look at energy costs over a 10 year period, the payback model looks quite different and the decision shifts slightly from LED tubes to integrated LEDs.

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But when you factor in at least one tube replacement over that 10 year period, no one would choose the LED tube because its maintenance cost is too high. Accounting for the total cost of owning, operating and maintaining a retail lighting system, integrating LED lighting with controls makes the most financial sense for even the tightest budget.

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Further, it’s critical to account for the rapid expected depreciation of light, which leads to much higher long-term costs.  LED tubes suffer 15 percent light loss within first five years – that’s enough light loss that would require most retailers to replace the tubes even more often than in the scenario above. With an integrated LED system, as much as 90 percent or more of light is still maintained after 10 years.


Real World TCO Examples

Retail Indoor Positioning Systems

Retailers are implementing various omnichannel strategies to quickly address changing customer demands and stay ahead of the competition. LED lighting-based Indoor Positioning Systems (IPS) can deliver a better omnichannel experience: in-store wayfinding, faster customer assistance, improved BOPUS (buy-online and pick- up in store) experience and optimized store layouts. However, if a retailer chooses the wrong LED deployment, upgrading to the new IPS beacon technologies could cost twice as much than integrating in these capabilities during a relight.  With advanced, integrated LED systems, the beacon sensors are integrated and the system is networked, so retailers can simply “turn on” their location-based marketing when they’re ready.  And when you consider the upfront cost savings from lower energy use, you have an omnichannel retail experience engine that pays for itself in energy savings.


Building Energy Code Compliance and Controls

If California Title 24 is any indication, regulatory requirements for lighting systems with advanced controls like daylighting, dimming, BAS compatibility, demand response, as well as occupancy and photo sensors, will spread across the country.  Further, regulatory standards such as ASHRAE 90.1-2013 are focusing on adaptive and programmatic controls to drive buildings toward zero-net-energy performance. Adding these features to a lighting system after the fact costs significantly more than integrating the technology during an LED upgrade, right from the beginning.

The New Relighting Mantra: Payback Today and Tomorrow

Relighting a retail space with a long-lasting LED system today takes a great deal of forethought about what might come down the road –and how to prepare for it.  The simple energy-payback model can really stand in the way of that preparation, and it can lead to enormous unplanned expenses in the future if retailers are not careful.  The bottom line is that retailers need to re-think the way they specify and deploy retrofit lighting systems.  It’s no longer a “three-years and relamp” scenario.  It’s imperative to look at the light fixture as the best platform to deploy a variety of technologies, so a simple payback model is simply not going to work. Embracing TCO as the ROI model will enable retailers to deploy smart LED lighting solutions that provide payback today and capabilities that will be needed for the future.

Jay Weiland headshotAbout the Author 

Jay Weiland is the Director of Vertical Marketing for Acuity Brands. He graduated with his MBA, magna cum laude from Vlerick Business School in Brussels Belgium and received his B.S. in Finance from Arizona State University.

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