Black Friday: the gift that keeps taking
This week’s Retail Note reflects on the horror that is Black Friday and analyses prospects for Christmas generally.
8 minutes to read
Key Messages
- Black Friday remains a deeply flawed concept for retail
- Flaw #1: it’s a meaningless jamboree of white noise
- Flaw #2: elongation reduces any impact
- Flaw #3: it doesn’t achieve incremental spend growth
- Flaw #4: very few ‘deals’ genuine, retailer brand devaluation
- Flaw #5: genuine discounting = gross margin erosion
- A ‘successful’ Black Friday may actually do more harm than good
- Retail sales volume decline of -5% to -6% in Dec will be worst on record
- But spend (+2% to +3%) will be at its highest level ever.
What can I say about Black Friday that I haven’t said before? Only what has never previously made it past the censors. A substantial body of work to be fair, but nothing that is going to placate the censors any more now than it did when originally scribed.
Flaws #1 and #2
But at least Black Friday is over for another year. Oh, hang on, it isn’t. Many businesses are still running Black Friday ‘events’ and ‘promotions’ a week on and don’t seem poised to stop anytime soon. Therein lie just two of the multitude of flaws of Black Friday. A retail ‘event’ has been hijacked by all and sundry from any walk of business and absolutely anybody and everybody is jumping on a questionable bandwagon. A retail ‘event’, wholeheartedly embraced by non-retailers, what’s wrong with that? A pointless free-for-all with no purpose and no meaning, just deafening noise. And noise about nothing.
The ‘elongation’ of Black Friday equally proves its folly. Many operators (retail and otherwise) launched Black Friday ‘offers’ and ‘promotions’ many weeks before the day itself (which was actually last Friday 25 November) and many are still running them at time of writing (and probably will right up until Christmas).
Again, what’s wrong with this, I hear you ask? On the one hand, it was never helpful to have a ‘one day shopping bonanza’ in that it created two huge headaches for retailers – in-store punch-ups and massive online / multi-channel bottlenecks. ‘Elongation’ was supposed to iron out these issues (though anecdotally, neither of my ‘Black Friday’ purchases arrived anytime close to when they were supposed to, from retailers that I won’t name and shame, but both begin with A, one a global online behemoth, the other owned by Sainsbury’s).
On the other hand, the other rationale for extending the Black Friday period is less operational, far more commercial. To milk it for all its worth. To kill the goose that supposedly laid golden eggs (but actually laid something else that didn’t get past the censors). The net result? Just more noise. Whatever Wizzard may wish of Christmas, if something happens every day, it just loses its impact. That is exactly what has happened with Black Friday.
How to measure success? Flaw #3
Of course, there are many measures that supposedly gauge whether Black Friday has been a success or not. Footfall is one of the key ones, but is spurious at the best of times and is virtually meaningless in the context of what is largely an online event. I haven’t even bothered to analyse any of the footfall figures for the past few weeks. Likewise, I pay little heed to retailers’ proclamations as to how great Black Friday was for them – having gone to all the trouble, they are hardly going to go public saying it was a disaster.
Even if we did have more transparency, a successful Black Friday may actually be a disaster for the retail sector generally. Flaw #3 of Black Friday (and one of the biggest ones) is that it doesn’t drive incremental sales growth, it just realigns spending patterns, often in a highly damaging way. Expressed another way, we don’t spend any more than we would have done anyway, we just spend it over a different timeframe. Rather than largely manageable demand patterns, retailers are faced with deeply unhelpful peaks and troughs.
If Black Friday is indeed a success, there will be a huge demand spike in late November, preceded and succeeded by a massive lull in demand in the weeks either side. The on-the-ground reality for retailers is perhaps even harsher. If you’ve tried to seduce your customer with (often phony) ‘deals’ in December, how can you expect them to buy off you when you’re trading at full price? Very few retailers can – and the response then is to inevitably continue discounting or running (often phony) new promotions. A very damaging viscous circle that is almost impossible to break.
When is a bargain really a bargain? Flaw #4
The million dollar question: are Black Friday ‘deals’ really genuine? I hate to ruin anyone’s Christmas, but any bargains picked up over the last few weeks probably aren’t. What I’ve always suspected is increasingly being backed up quantified research. For example, based on tens of thousands of price comparisons, Which? found that 98% of Black Friday deals were the same price or actually cheaper at other points in the year. Thank you Which?.
Flaw #4. The catch-22 of whether retailers should offer genuine discounts or not. To do so is total folly, to sacrifice precious, nay crucial, gross margin in the peak trading period, a suicidal strategic move. But to offer phony discounts is equally bad on another level – retailers are essentially conning their customers and relinquishing their brand equity. Less financially damaging in the short term, but potentially more harmful in the longer term. A catch-22 which, by definition, can have no positive outturn.
Of course, the level of ‘real’ discounting will be implicit in the ONS retail sales figures when they are eventually released (sadly not until 16 December) when we are able to compare values and volumes. If Black Friday were what it purported to be and ‘deals’ were genuine, we would see a sharp reversal on inflationary trends. Are we going to see inflation magically evaporate in the November numbers? Of course not. That partly answers the ‘genuine or not’ question.
The one exception to this is electricals – and this is the only category for which Black Friday makes any sense. I will confidently predict that there will be deflation in the numbers for electrical goods in November, but then again, there already was in previous months’ figures. Whether Black Friday electricals ‘deals’ are genuine is still a moot point as effectively most are just old or obsolete stock. Effectively, electricals retailers are just clearing the decks and bringing the January sales forward by a few weeks. So, the new laptop you bought may be a bargain, albeit it’s probably last year’s model.
The hypocrisy. Flaw #5
No one is blind to the current economic challenges. I suppose this is why the media are generally so pro-Black Friday, erroneously taking everything at face value. As cash-strapped consumers face up to a cost-of-living crises, what could be better than retailers slashing their prices and making goods more affordable? Black Friday a breath of fresh air in times of great human need?
Needless to say, I see things somewhat differently. Fobbing cash-strapped consumers off with phony discounts jars considerably. But giving retailers the benefit of the doubt and assuming that the deals are indeed genuine does paints a scarcely better picture. Retailers are essentially then giving up invaluable gross margin at a time they can ill afford to.
Retailers will face massive cost pressures next year, particularly (but not exclusively) spiraling energy costs. Expect to hear many operators bewailing these cost pressures as they release trading statements and inevitably issue accompanying profit warnings. The very same retailers that inflicted huge financial pressure upon themselves by indulging in Black Friday and giving up gross margin. None of my metaphors for this situation stand any chance of passing censorship. So, all I will say is that I, for one, will find it very hard to summon up sympathy for operators that can’t help themselves.
The bigger picture
I’m continually asked why I hate Black Friday so much. The issue isn’t that I hate it, rather I recognise how damaging it is to the industry that I represent. And that this damage is self-inflicted by businesses I’m supposed to defend. And the irony that the media are very quick to identify and labour each and every negative factor that supposedly undermines retail, yet champion something that is infinitely worse than any of their pet topics.
And, of course, the media have already made up their mind that this Christmas will be the worst ever. In volume growth terms (I doubt they even understand what that means), it most definitely will be. To be honest, the bar for this is set pretty low. The lowest monthly volume growth we have ever seen in December is -1.9% (Dec 1991 and Dec 2010). This December will comfortably exceed this at ca. -5% to -6%.
But there will be year-on-year value growth in December – we predict +2% to +3%. So, we will actually spend more money than ever before, so you could argue it will be a record Christmas on that basis too, at the more positive end of the specturm. But obviously, the gulf in volume and value performance will put pressure on retailers’ margins – all the more reason they shouldn’t (and hopefully haven’t) been sacrificed in the absurdity that is Black Friday.