Avery Dennison Corporation (AVY) Earnings Call Transcript & Summary

Hi. Good afternoon. I'm Jeff Zekauskas, I analyze Chemicals here at JPMorgan. It's my pleasure this afternoon to introduce the management of Avery Dennison. And representing Avery Dennison is Deon Stander, who is the Chief Executive Officer and he's been CEO since 2022. Prior to becoming CEO, Deon ran the Solutions business for Avery, which is where their RFID businesses nestled or their intelligent labels businesses nestled. His history is that he came to Avery through the Paxar acquisition way back in 2007, which I know some of you remember. Also accompanying Deon is John Eble, who is in the second row, who's the Head of Avery's Investor Relations effort. The form of our discussion will be fireside chat. And so we'll begin. Welcome.

Thank you very much, Jeff. Good to be here with everybody.

Okay. Thank you. I think the first question that's probably on people's minds these days are tariffs in that there seem to be tariffs on the Canadians, on people from Mexico, on China. And Avery is a global manufacturing organization, how do you begin to think about some of these issues?

So we've been doing a lot of work around understanding how tariffs may play out. And I said that with a caveat, I don't think anybody has a clear view yet as to what the finality of policy will be. But as a business globally because we're denominated in most regions around the world, we make, buy and sell in country. So to that extent, tariffs don't really apply to us. There's 3 vectors where we see some tariff -- potential tariff impact, but it's on the very small side of things for us. So one is if we're having to source materials from one country to another that may be tariff bound. One of the experiences we had in '23 when we had the supply chain crisis, the significant stocking and destocking that happened into -- '23 into '24 was a real focus from us on ensuring that we have supply chain resilience across a number of sources. So to that extent, if we do see certain countries or certain commodities being tariff orientated, we have an ability to switch sourcing. And so we see a de minimis impact in that regard. I think if you think about the 2 areas where there is likely to be some degree of impact is firstly, in China, I'll talk about that. China for us is about 15% to 17% of our revenue, of which half of which is bought, made and sold in China domestically for domestic China consumption. So it's not subject to tariffs as we understand them at the moment. The other half is actually resident in our apparel business. We make a lot of tags, labels and packaging for the apparel industry that go into garments manufactured in China, which are then exported predominantly to the United States and Europe, roughly about half in each proportion. And we actually see, in that regard, tariffs and implication of tariffs to China to be an advantage for us. We've been -- we're the largest provider to the apparel industry around the world. And we've been helping brands in both North America and Europe and retailers for many years move sourcing around the world. So they move from China to Bangladesh or from India to Honduras, we have footprint in each one of those regions. And when that typically happens, we tend to disproportionately benefit because we have the largest scale and footprint. And we've been doing that with our brands and retailers for many years. So in some ways, a higher tariff policy on China has an opportunity for us to help those brands move further their volume into one of the other sourcing countries. The only area I see some direct potential impact is probably what we see overall is if tariffs become to such a point, for example, in apparel that the price point for apparel goes up fairly dramatically in any end market, then you're likely to see some degree of volume decline or consumption decline. It's a discretionary purchase at the end of the day. Switching to the other side of the hemispheres in Mexico and in Canada. Most of our business in Mexico is again largely denominated bought, sold and made on our materials business in Mexico. We have a very large and recently built Intelligent Labels facility in Mexico itself. We use that to service this hemisphere, both north and south. And knowing or thinking that there may be some tariff implication, we know that we have enough resilience in our network in other manufacturing facilities to move volume around. And we actually have footprint actually in the U.S. that -- which largely a research center with some production capability. If we needed to, we could ramp that up. So we see maybe a transitory impact if those came to bear for Mexico. And in Canada, we're largely supplying the industry out of the United States should tariffs really take hold in that regard. We just see that as part of our normal process of managing our customers passing on those tariffs as they were as we roll them out as well. So overall, I'd say, my bigger concern for us is not so much the direct impact of tariffs, I think we planned enough work around scenarios, the strength of our business in doing that, so we can address them over time. But more likely, is there going to be a broader consumption impact in certain markets that may drive volumes. And at the end of the day, Jeff, I think our business is very anchored in consumer staples across most of our business, largely nondurable consumer staples. They tend to be more resilient, but they can be at times impact if tariffs drive further inflationary pressure as well.

So in some of the industries that we cover, what we saw, especially in commodity plastics, is that in November and December of 2024, it turns out that there was very sharp upward trajectory in shipments of materials because people were worried about tariffs that might be imposed early in the new administration. When you look at the retail area, have you seen that? That is when you look at the shipments or the production around the world, have you seen sort of more rather than less because people have been preparing for tariffs? And then when you look at current demand conditions, what we've seen in some of the industries that we cover is maybe a slight softening. How do things look a little bit in retrospect? And how do they look now for you?

So I'd say in retrospect, I'll use the example of when we went through the '23 significant inventory build and then the destocking in '24. I think collectively, industries like ourselves and business like ourselves took a lot of learnings out of that, mostly around do we have a good enough handle on what's happening in end consumption in CPG, for example, into retail and building resilience, both from a data science perspective to understand outlook and then also just more insights from our customers. And I think that's going to be helpful, and that's what we're leaning into as we move forward. I don't, at the moment, see any significant industry-wide build or downside at the moment. There's always going to be pockets of the edges, a couple of customers here or there. But because we spread across almost all staples, we don't necessarily see anything at the aggregate that would suggest there's been dramatic inventory builds in advance. That includes even in apparel as well. Now as it relates to demand at the moment, I still think it's a very dynamic environment and probably made more dynamic by some more of the discussions that are happening around policy but also the geopolitical stage. I will say from our perspective, March and the first quarter for us is such a big part of our earnings. It's very difficult to call where it will be at the moment. But I will say, based on everything I know now, we still will reiterate our full year guidance of $9.80 to $10.20. I think there may be pockets of some softness, but we're also seeing some offsets as well. And so I think as and when we have better clarity of what the policy -- true policy implications are going to be and how they manifest themselves that will give us greater insight. If there are significant dislocations in the market, we're going to be subject to those as well, Jeff.

And so you said you most likely will reiterate your guide and...

We do reiterate.

And you would. And the first quarter for you seems more or less within your parameters of you expected when you...

Again, March is such a determinant month...

It's a larger month.

Yes. But all things would suggest that it's going to be within those parameters. And remember, what we said from a guidance perspective was the first quarter would be very similar to the first quarter last year. And then as we rolled out programs and new programs, earnings would sort of grow as we went throughout the year. We also got some price hangover that came into the first quarter from the back end of last year. And so those factors combined, I think we're -- as we see the March play out, we'll have a much deeper sense of where the true business is going to be at.

Okay. And from our point of view, we haven't really seen any material inflation, at least on the chemical side going into Avery. Have you seen any -- would you agree with that? And how about the paper side? How is...

So I agree with you on the chemical side. I mean there are always pockets of small [indiscernible] and so forth that tend to go. But we're not also seeing anything really on the paper side. We saw a little degree of inflation at the back end of last year and that's started to unwind, just a small amount. We didn't necessarily take any action on that. There was some noise in the market, particularly as it relates to paper in Finland again that has been resolved now, at least at the macro level. It's more of a broad economic strike that has been, I think, now averted. And we've made a lot of plans around managing inventory ourselves and sourcing. So at the moment, I don't necessarily see -- the outlook that we started the year, which is relatively a neutral inflationary year, not significantly high, not significantly low, was probably still going to be the case based on where I stand right now.

You went through a period of time where your materials business really experienced very difficult volume comparisons and then volumes came back. Do you have a sense of where industry inventories are? Are we now at some more normal condition of growth in materials?

I'd say as normal as I've seen it for the last probably 3 or 4 years overall, Jeff, and that includes inventory as well. There are always going to be elements given the breadth of our portfolio where some of the specialty products may be a little more held in inventory for customers or a little less. But typically across all of them, I think we're probably in a more normal environment. And I see 2 elements. In our Materials business, as you know, 70% of our business is what we call in our base business. These are kind of really denominated by what we call GDP overall. It's a unit volume-driven staple business overall. As GDP goes typically, we go. Now we have 2 accelerants that we then layer on to our materials business. So one is we have what we call our high-value categories. These are labeling decoration technologies that have utility beyond just the label. So think about industrial tapes used for mechanical -- to replace mechanical fastening for noise vibration; some durable labels that go on shipping and oil containers; specialty labels, a good example of which would be if you go into your supermarket and that clamshell that you used to buy with your lettuce or produce in, now has one of those peelable films that you can peel back in the reseal, we patent and develop that technology. It's a different way of providing another application beyond just the value of the self-adhesive piece. And those categories tend to be sort of mid-single-digit growth for us. So when you put the 2 things together, and then you also have for us because a large part of our business is in emerging markets, you naturally have got a higher GDP growth in some of those emerging markets. So overall, that business tends to be GDP plus. And I don't see any significant change as we sort of -- where we are from now and then as we move forward in that as well.

One of the questions that our investors have is when they think about label demand for Avery, they wonder -- is there more demand at physical locations for Avery labels? Or is it better that products are shipped through the mails? That is it the e-retailers that you would prefer or the physical retailers that you would prefer and...?

That's a great question. We can have a whole long projected discussion about the future of physical retail and whether it's important or not, that's a separate topic, I think for -- but overall, what I would say is, at the end of the day, all physical products have to show up having 2 elements to them to the consumer. So one is it has to carry some form of brand equity. How else will you know if it's a Tide bottle relative to any other. I'm using it as an example. So there's one element of branding and brand equity. And the second element is information, where it's come from, how it's made, the content and so forth. And so for us, the way we think about it is whether an item goes into a retail environment or gets shipped directly to a consumer, it still carries roughly the same amount of label content materials. They may be slightly bigger and smaller. There's no real difference between private brand and national brands as well with similar label content. And then the additional piece in this, the more -- actually, the greater e-commerce, the more packaging you're sending, the more packaged labels or variable information labels we have. And so you have this other piece that comes into play on that slide as well. Now for me, the biggest part of this is the future of where those are going. They are currently what I would call analog labels in that sense. They are static. They only give you what you see and what you read. We know, and I have a very firm belief that in the future, every physical item, no matter what it is, perhaps not in all my lifetime as I shared with you, is going to have a digital identity and digital life because it's going to enable supply chain transparency from the moment it was born all the way through to retail to consumption and to end-of-use disposal. And I think we then also bring that RFID technology to bear in those labels that we provide to all of the industries. And that is a unique position that we hold. We are the world leader in what I think is the best sensing technology, UHF RFID. We're the world leaders enabling decoration and information on physical items.

So maybe we can turn a little bit to RFID. What people have noticed over time is that chip technology changes, and there seem to be newer generations of chips that are being used. Do they improve the performance of your RFID inlays?

There's no doubt that improved chip performance matters at some point. Now there's 2 things that are happening actually in the chip industry. If you think about the device that you use, those are very, very complex chips, what we would call in the semiconductor in the highest nodes of being able to build capability to hold information really. The older nodes have less capability. UHF RFID actually requires less capability. What you're really trying to carry is effectively a unique item number and then you associate or serialize that with the physical item that you're doing, whichever it is at the same time. And increasingly, the future is going to put that information in the cloud. It's the reason we built, I think, the world's largest digital identity base as a software piece so that we could house all this information in there. And so as chip development continues, I think we're going to see slightly improved performance at the end of the day. But what actually makes a difference when it comes to the use of RFID is the antenna that we put with it. So think of the RFID supply chain being first semiconductor manufacturing, the chip. It's not us. We're not going to build a fab. The second piece is you then take that chip and you put it onto an antenna. So you design an antenna that is fit for purpose. It will either work in loosely hang garments, tightly packed garments, protein, on-shelf shipping. Each one of them has to be uniquely designed to read the most effectively that it can. We are the world leaders in both the design and our IP portfolio in that regard as well as the world's low-cost leader in manufacturing of those. And then you take that thing in the next node and you associate in a form factor, typically, a tag or label maybe on clothing and you move to the next step, which is data management. So you manage the 2 pieces of information together. And we're again the world leader in that. And then software, which we play a role in and hardware and finally, services. So for me, I think what's going to matter is when we get to some of these increasingly complex categories, the design of the antenna or the whole chip and antennas, again, is going to be more and more important. And we know that because there are categories now in food right now that we are innovating around where we will be bringing more proprietary innovation to the market in this next year that will enable some of the categories that have not been possible to adopt because of that very limitation, irrespective of how good the chip is.

So there's a lot in what you said. You'll be able to innovate in food. So when I think of food, I think of cold meat.

Yes.

So the innovation would have to do with temperature and wetness?

No. So we see food being adopted largely in what we would call the perishable categories. Think about the rim of the store, bakery, proteins, leafy greens really. Anything that is highly perishable and revolves -- and involves an enormous amount of labor to identify what's best before date, what's close. That's where we're seeing a lot of traction. And that's where, for example, with the bakery pilot or the bakery role that we have with Kroger right now. But some of those categories are very, very challenging to read using UHF RFID. I don't want to go into the technical detail, but you require a backscatter approach. You need to be able to activate the device because it's a passive device, doesn't have a battery, using the energy from a radio wave on a reader. It wakes up, it tells you something to do with that item and it sends it back. Depending on the complexity of what you put that label or tag on to, it can significantly interfere with that radio wave performance. And so if you have things that are very high, I'll give an example, dielectric components. So meat is very water-intensive, very dense. To be able to try and read something off something that has a lot of water and very dense is very difficult from a physics perspective. And some of our innovation is in solving how we do that and enable that. I'll give another example. We knew probably 5 years ago, we had a conviction that food at some stage would go and protein is the biggest part of food is the most valuable part. 60% of protein probably when it gets home -- to the home is put into the freezer and then it gets dethawed or thawed through a microwave typically to be used. You can't have something -- can't have a semiconductor device that goes into microwave that will explode because it overheats. So we, 3 years ago, launched the world's first RFID safe microwavable tag, knowing at some point that protein would come along as well. So those are examples of how we bring innovation to bear to help activate and amplify a new category.

So the innovation is around...

The inlays. There's innovation around meat, there's innovation around density of items on the shelf. There's innovation around ability to read very quickly from a distance. That's another piece of that. And this is a core strength of ours, but we're also continuing to learn. We've invested quite a lot in artificial intelligence in how we design these. Typically, I'll give you an example. Typically to make an inlay, for a specific purpose, it takes 6 to 8 weeks. You have to design it, then you have to test it, then you have to physically replicate it and you have to test it again. We're using an AI tool that we've built now to be able to shorten that cycle dramatically by 80%, so we can actually get to market quicker with the testing process.

So again, there are so many things we can touch on. So some people conceptualize the RFID industry as really a commodity industry. And what they do is they worry that maybe there will be too much capacity. And so if I understand what you're saying, the different RFID categories may have their own dynamics and there may be proprietary features of one kind or another that different providers have that make the industry a little bit more complex.

I think your last point is right, Jeff. The industry will be complex. Like any technology over time, I think at some point in time, there will be an element of it which will be -- have more of a commoditized feel, but a large part of it is still for at least for the next decade is going to be more differentiated than that. And that's going to vary by individual product type and by segment type. So I'll give an example. If you're -- as I described that supply chain that node of RFID, most programs work because you're needing to do 2 things. You're needing to have something that's designed for its end use, specifically, let's say, on hanging garments or protein. And you're also needing to manage and associate the data through the supply chain. So you capture every event. In its best expression, people like ourselves can put tags and labels at the source of an item, whether it's apparel or food, we can manage the data around that, which we hold in the cloud. And then as retailers or brands and consumers use that they can interact and write updates to that unique item, where it was in the port of shipping, how it was used, et cetera. And so you have a sort of -- you have both a suite of bringing a physical product and having digital solutions added on top. That's at the upper end of what I call the complexity spectrum. At the lower end, it might just be I'm going to have a simple, relatively simple RFID label. It has to still be designed for a purpose. And you're likely to see more, what I would -- what you termed commoditization in those areas. But I'll give you a real example of even how that will evolve. With UPS, we launched that program with them to resolve missorts and labor efficiency in their last mile fulfillment centers, the point at which all these packages come in and they go on to the right truck. And they were having missorts in 1 in 400, which doesn't sound like a great problem, but you ship 20-plus million packages a day. Each package costs more than $20 to bring back and resend out. It's an enormous amount of money. So we moved that from help with them from 1 in 400 to 1 in 800. But that it's a relatively simplified product in that regard, designed for specific purpose, but we're not managing any of the data as an example. They are moving in their journey, and this is public knowledge to the smart van. So they use it in the van as well and to the smart driver, the person who gets out, makes better sense of it. But ultimately, their destination is to go to what they call smart customer, which is the source, again. So not only are there stores where people walk in to hand in the package but corporate customers. The analogy I would use is it's like tagging that apparel item at when it was made or the food item in the farm. When you go back to source, you need to start managing the data. And so what might be -- seem like a more simplified product now for UPS, at some point will become a much more complex solution that we can again step into. So I think it's going to wax and wane across times. And certain elements of segments are going to be more complex and others are going to be more simple, but our great strength is being able to do that across all of these spectrums, and I will hasten to say at above -- across all of them above average segment margins.

Okay. So to go back to the food application for a moment. So what Kroger began with were baked goods. And I think the Avery shareholder base side and thought, okay, that's it. So it sounds like there's technology development that's going on. And as that technology development accelerates and becomes more of a reality, then the opportunities at Kroger or at other food applications become greater. But maybe one of the limiting factors is the state of the technology as it was over the past 6 months.

No, I don't think the technology is a limiting factor. And we've been very clear, even Kroger has been very clear on this. Bakery is just the first step for them. They want to do -- ultimately, our journey and road map for them is to do all perishable items, whether it's proteins or ultimately and at the end stage, leafy greens as well. It was important for us to make sure that Kroger were visible in the first because at the end of the day, it's not a customer success that drives an industry to adopt, it is a ubiquitous business case that applies across the industry, which is what we saw in UPS, and we're now going to see in Kroger. And as a consequence of that, I can tell you now, we have a lot of inbound and ongoing pilots and trials with other grocers wanting to take the same approach. And now you're into, okay, can you -- what's the rollout schedule look like? That's no different to any other. Is it store by store? Is it geography? Is it product? And as we've seen the history, we have seen at least in apparel and general merchandise, you start in one area and ultimately you work your way through the whole store. And that's typically what we've seen across at least in the apparel side and starting to see in the general merchandise side as well. The technology is not a limitation. There are unique pieces that we -- people like ourselves have to innovate around. But at the price point where it is and the scale of the opportunity, I think there is an enormous growth industry ahead of us. I think I've consistently said apparel is an addressable market of about 40 billion units, and we're only 40% penetrated. Logistics, just the 5 or 6 logistic players is 65 billion to 70 billion units. We have a ubiquitous use case now, and we're in discussions of pilots with every one of the others as well. And food is 200 billion units plus, and that's just in perishable items. So there's a long runway ahead of this.

So the investor in Avery is sometimes fretful because the investor will look at the price dynamic in RFID. And the price dynamic is difficult for an outside observer to make out because the retail tags are -- have higher price points than, for example, the logistics tags. So when you look at the EBIT per tag per category as the chip prices fall, does the EBIT per tag per category rise or fall or stay the same? If you understand, what I'm saying...

No, absolutely. I know what you're trying to drive towards, Jeff. So let me maybe answer it in this way. And if it doesn't address your question, please pushback. What we see is on the spectrum, we see price points all the way from kind of $0.02, $0.03 all the way up to $0.10 plus depending on complexity and use. What we do know for ourselves is across those, broadly, we have very similar margin profiles across all of them. The more simplified a product is, the more scale volume is, the less other supporting infrastructure we put into it, and we have scale adoption of our assets as well. And so you're able to generate very consistent margins across all of them. The per unit EBIT number may be slightly different, clearly, given the retail price. And I think as the industry evolves, we're going to continue to see products move up and down that scale. So as an example, during this last year, we brought in apparel for Zara a loss prevention tag to replace their previous tag, which is largely focused on inventory accuracy, a significant benefit to them, unique IP, and we're able to command a much greater value capture of that particular product. And we see that as another entry route into expanding apparel further. So at a unit level, all I will say is we tend to see very similar margin profiles. And across all of them, they are actually above our segment average overall. That includes us consistently continuing to lean forward and invest both in capacity, in people and in innovation. Our objective at the end of the day as a company is to deliver GDP plus growth and top quartile returns. If you look at our Intelligent Labels platform, our objective is to say that as we move forward, we want to maintain our greater than market average share overall. So continue to be 50% plus of every market and every customer we participate in. And that's important to us because as we activate and drive these new segments that food $200 million logistics, we're going to disproportionately benefit from that given the largest player in the market as well.

So is the conclusion that we should draw that while chip prices go down and while the prices of individual RFID tags in the individual categories go down?

Up and down, depending on what the application is.

Yes, up and down. That in general, that's not something that penalizes Avery. It's something that perhaps enhances the growth rate and the margins stay relatively good.

That's the takeout I would have. And I would say as well that 2 things are going to happen. One of the reasons why we have this drive and one of our core strategic pillars is to sort of expand what we call our high-value categories. Intelligent Label is just one of those because they're categories that have higher growth, higher margin and greater differentiation. And by definition, if we grow those at a much higher rate as a part of our portfolio, we're going to get a natural mix margin accretion. We see that. And that's where intelligent Labels will play into that as well. I think on the individual Intelligent Label piece, we have seen -- this is not immune to any other technology. We've seen kind of low to mid-single-digit price reductions over time. Our ability to generate productivity, which is one of our great strengths more than offsets that, and we're able to drive. So I'll give you a real example of that. In the last 5 or 7 -- last 6 or so years, we have, through our engineering capability and our productivity, been able to half the rate of capital intensity per billion units of RFID that we produce because we're able to bring from our materials business the ability and the capability to do large-scale roll-to-roll manufacturing. Think about self-adhesive paper and film. We brought that same capability into manufacturing billions and billions of inlays as well.

You make 23 billion units?

It's in that ballpark.

So when we -- thank you for that. When we think about the UPS experience that you've had, it seems to be the case that you had all of the UPS business. And then at a point in time, other people had UPS business. What -- like I'm not trying to pry into exactly that particular customer, but to the general structure where Avery goes and captures a piece of business and then there's a certain amount of time. Is it a year? Is it 2 years that a certain amount leaks out? And how do we think about how much leaks out and why it happens and what the general commercial arrangements are?

So I would say because we've been doing this for quite some time, particularly in apparel, now in logistics and starting in food, our assumption is always that when we start a program because we are -- if you thought about those nodes that I described, we're kind of the one throat to choke, can really do that at scale globally with efficacy. We tend to be the people. I can't think of a customer that started program where we haven't been the person to start it exclusively with them. They want to start something. Bear in mind, the use of this is not just another label. It's a piece of technology that gets deployed. It has cultural implications, cultural adoption implications in store in the supply chain, which we help with customers with. So typically, we started -- we're typically exclusive. And then for a period, and it varies by customer but by segment, we remain an exclusive provider. We always assume at some point, there's going to be what we would just call share normalization. Customers may decide they want a secondary supplier or a third supplier for a small proportion for risk amelioration, a normal procurement approach in the company. We knew with that particular customer mentioned that at some point in that kind of second year we'd also see that as well and brought to bear. And I go back to my standing point, my aim and our company aim is to make sure that we maintain our majority share, no matter what happens. And I'll give you examples in our apparel industry, we've had customers that have been with us for more than 10 years, RFID customers. We are still the vast majority share provider, 70%, 80%, that type of thing because for 2 reasons, one of which is when things are more challenging, they need somebody they can rely on to really move the velocity of the supply chain, move the innovation platform, bring them innovation. And the second piece is that we've been able to actually continually refresh the value creation we can provide to them. The Inditex example is just a good one of that. That was a very program where we had more than the majority share, but being able to bring in new technology for loss prevention enable us to capture, again, a very, very, very high percentage of the share. And I suspect across all these industries here, we're going to see that. Our outcome with our logistics customers, we are still the vast majority share as we go through this year.

So for the decision that's being made by the customer, how do they make that decision? That is, do they go to 60% or 80% or 40%? Do they give everybody alternatives? They say, if you want to hold on to the business, like these are the price points? Is it very much a negotiated...?

It's typically, we try to have arrangements with our customers that are multiyear, 3 to 5 years depending, and we factor some of that share normalization into it. The reasons they go through them, I think, are more to do with risk amelioration than anything else. I think there's very few organizations always feel they're comfortable just having one single supplier. We're not dissimilar ourselves when we think about our own supply base. But what you try and rely and at least I can only speak for ourselves, we're looking for strategic partners that can drive the vast majority of our business. And that's typically where we end up as well with our customers in that regard.

So maybe as a last question, there's an Arkansas retailer of above-average size. And there -- it seems they have an initiative to use more RFID tags across their footprint, is this a larger dynamic that's important to Avery in 2025?

So I earlier spoke about, Jeff, what we're seeing in apparel general merchandise is this trend to the whole store, ultimately the whole store. And there's a very good reason why. If you -- for some of you who are in the United States over here, if you go to a Uniqlo store, if you happen to have Uniqlo store, you go to them...

We do. We all do, and it doesn't work perfectly at Uniqlo. They're always scanning at the end with the duplicate items.

All Uniqlo is tagged every item. If you happen to be in Europe, go to Decathlon store that's one of our customers. They are a sporting retailer. They tag every item, even a protein bar or a chocolate bar. Even though that bar may only cost EUR 0.50, the tag relative to prices, it doesn't seem like it make economic sense. But the reality is, and we're going to see this, and this is what you're seeing for that retailer you talked about, general retailers as well, if you're able to leverage the technology to take inventory much quicker to provide a higher level of associated or store labor productivity, but this part of the store doesn't have that. Now you're running effectively 2 operating systems for your store labor. You're running one that's highly efficient where people like what they do, and you're running one where I'm still using an old clipboard to go and check things. At some point, retailers have got to the point of saying, okay, if I get enough of my store tag where I can get the efficiency and the ROI and the actual item, then I don't want to run a second approach in my store, and I just want to go. And that's what Uniqlo have done. That's what Decathlon do. And I strongly believe in general merchandising, we will get there as well. It also allows for the final thing, which is complete self-checkout should you choose to do that.

All right. Thanks -- sure. Go ahead.

It seems so much that you're driven by innovation [indiscernible] UPS thing, all those different things and that's driven [ at your end not at your ] customer end...

No, it's both, actually. I mean I will tell you, we're celebrating our 90th year this year, just to show and you don't get to survive 90 years unless you're really focused on innovation and the customer. And so we do both. We go out in the market and we listen to customers. But we also look at inherently our capabilities and what we can deliver out of that. The protein tag was a good one. We knew -- no customer is asking for it, no market adoption is required, we sense that a point that being able to do so would happen.

Right. But can you -- those people innovate [indiscernible] you self-develop it or they're coming out of school, where are they coming from?

Most of it comes out of either technology or universities or colleges at the high end. We have a lot of PhDs. We're a material science business at heart and the digital Identification Solutions business on the other side. One of the things that we also do is when we do M&A, and we only do that as an execution of strategy, to be clear, when we do an M&A, one of the key factors we look at is the talent in the organization, what are we going to get, particularly around can we help get transformative talent in gaps that we already have as well.

Okay. Good. Thank you very much for your attendance. Thank you for coming. .

Thank you very much, Jeff. Appreciate it. Thank you, everybody.