The Most Ridiculous Time of the Year

Ahead of what Andy Williams (and many other festive warblers) dubbed ‘The Most Wonderful Time of Year’, we first have to endure the horror that is Black Friday. At best, the ultimate in lazy and unimaginative marketing. At worst, a margin-sapping, throat-slitting exercise in me-too desperation amongst retailers and the ugliest face of consumerism amongst shoppers. Either way, Black Friday has absolutely no redeeming features.

Black Friday 2017 – not more of the same

During its relatively short history in the UK, Black Friday has evolved considerably – mainly because UK retailers soon realised that the sales generated from such an artificial ‘event’ were in many respects fool’s gold. Many retailers no longer regard Black Friday as a potential sales bonanza, much more an exercise in damage-limitation. 

A quick recap of the history of Black Friday in the UK. 

2013: a long-established phenomenon Stateside, it was first imported into the UK in 2013 via the two US-owned businesses Amazon and Asda.

2014: virtually all UK retailers jumped lemming-like onto the bandwagon. And soon realised the pitfalls of having such intense sales peaks on a single day without the supply chain capability to adequately meet demand, not to mention the pressure it also created on already fragile margins. But consumers loved it to the point of having in-store fist fights over apparent ‘bargains’. 

2015: the media and analyst communities went into overdrive, concocting estimates that Black Friday sales would top the seemingly magical (but very notional) £1bn mark. But in the event, retailers tended to scale back, having had their fingers burnt the previous year, and Black Friday was much more a damp squib than a bonanza.

2016: the scale back continued. Many key retailers (ironically, even Asda) opted not to partake at all. Those that did tended to stretch Black Friday over as long a period as possible – ‘Black Friday Week-ends’ soon morphed into ‘Black Friday Weeks’. There was also growing fatigue amongst consumers amid the realisation that the ‘bargains’ were not necessarily all they seemed.

Our expectations for 2017? Essentially, we expect a continuing evolution of the scaling back seen the last two years, although this may not be discernible to the untrained eye:

• Further elongation of the Black Friday period
• An online, rather than store-based event
• Increasingly an electricals-dominated event
• A growing disconnect between the levels of marketing noise and actual ‘discounted’ stock
• Increased indifference amongst consumers.

That Black Friday has become more an online than in-store event in the UK was an inevitability. In its native US, Black Friday is a public holiday, falling as it does the day after Thanksgiving.

In the UK, it is a normal working weekday, so most workers will struggle to find the time to hit the shops. The in –store riots of 2015 will thankfully not be repeated – over and above the negative PR these generated, those affected (principally the major supermarkets) realised that the furore didn’t actually benefit wider sales performance, plus incurred significant extra costs in the form of higher security.  

Diverging Responses from Retailers

Black Friday means different things to different retailers. We would summarise five key segments of response:

1. ‘Full Embracers’

Retailers that still make a major strategic play for Black Friday. By and large, these are electricals retailers (e.g. DSG, Amazon, Argos), who still have a vested interested in the mechanics of Black Friday.

But it is worth stressing that the majority of ‘promotions’ in electricals are actually anything but – they are not core merchandise offered at a discounted price, but special purchase goods manufactured and bought in specifically for the event. Electricals retailers can partake fully as it is not margin-eroding for them to do so.

2. ‘Desperados’

Retailers that haven’t learnt from the past and still offer a blanket (typically 20%) discount across the store. As few retailers are willing (or can afford) to take a direct 20% hit to their gross margin, these retailers will be few and far between. 

3. ‘Caught in the Crossfire’

Retailers that partake in Black Friday, but more from a defensive than offensive standpoint. In other words, they only get involved because they feel they have to.

In our view, John Lewis falls into this camp, principally because of its high exposure to the electricals markets and its ‘Never Knowingly Undersold’ price-match pledge. Whatever POS (point of sale) and management may say, the approach towards Black Friday is increasingly lacklustre.

4. ‘Paying Lip Service’

Retailers seemingly embracing Black Friday, but in reality doing next to nothing. These will be in the majority rather than the minority. Marketing and POS may appear heavily supportive of Black Friday, but these are unlikely to be matched by similar depth of stock on Black Friday offer.

Any promotions that are offered would have been offered anyway and have just been brought under the catch-all banner of Black Friday. Less margin eroding but nevertheless disappointing that these retailers feel the need to ‘keep up with the Jones’s’ 

5. ‘Abstainers’ 

Retailers that make absolutely no play for Black Friday at all (e.g. Next, Marks & Spencer, Fat Face). They have either realised the folly of the whole event and are willing to forego some lost sales in favour of maintaining gross margin.

And above all, have faith in their brand and don’t wish to undermine it through following the noisy herd.

Black Friday and Seasonal Trading Patterns

Lazier commentators are already predicting that Black Friday this year will be bigger than ever and that more retailers than ever will take part.

On the second point, I would probably agree that there will be more noise than ever before. However, given that much of this noise is mere lip-service, I doubt actual sales will be higher than the peak of 2014.

Any actual figures relating to Black Friday sales are largely meaningless. A media-friendly £10bn is already doing the rounds, but this relates to an estimate for the whole Black Friday week.

Therein lies the issue – defining what period Black Friday refers to. As we’ve said, it’s already gone beyond a single day’s trading and some retailers are already running Black Friday ‘promotions’ a full two weeks before the event itself. Deriving meaningful sales figures is tantamount to assessing the length of a piece of string.

Although nigh-on impossible to quantify, there are far more qualifiable facts on Black Friday spending generally. Very little spend made on Black Friday (or over the elongated period) is likely to be incremental.

In other words, it would have been made anyway, albeit not necessarily at that time. So, in itself Black Friday doesn’t generate spending growth – if anything, it generates the same level of spend, but at lower margin.

Black Friday was originally conceived in the US as a way to kick start retail sales in November and for this momentum to carry on through for the remainder of the Christmas period. Some UK retailers embraced it initially as means of comfort if October’s sales had been slow. What has happened, in effect, is that seasonal trading patterns have been completely displaced.

Rather than an important turning point in a staggered build up to Christmas, Black Friday has in many cases created a very artificial spike at the end of November. Rather than bring comfort, these peaks and troughs actually generate even more uncertainty than was there before.

This year is proving a good case in point. October’s retail sales figures were poor and one possible explanation is that consumers were holding back in anticipation of Black Friday. Admittedly, there are many other potential factors in play too (e.g. squeeze on incomes, tough comp base, unfavourable weather etc), but if Black Friday is an issue, clearly it is not a positive one. 

And the uncertainty will not end there. What if November is very strong? Have consumers gone to town on Black Friday and have no spend left for December, the classic ‘Black Friday’ spike of 2014 all over again?

What if November is an equally slow month? Taking the positive view, if sales were slow in both October and November, there should be a large degree of pent up consumer demand that will play out in December. Christmas will come, but it will come late, making for a very nervous waiting game for the retailers themselves.

Or what of the Doomsday scenario, that sales in the last three months of the year are weak across the board and Christmas does not come at all? The imponderable suddenly appears a possibility.

In the run up to Christmas, retailers want comfort and clarify. Black Friday provides neither.

Final Thoughts

To pre-empt two of the most frequently-asked questions of Black Friday: 1. is it here to stay? 2. will it ultimately take the place of Boxing Day and the post-Christmas sales?

• As a tagline, it is definitely here to stay (at least until the retail marketeers come up with something more imaginative). But its power as single-day sales bonanza will continue to diminish in parallel to increasing consumer fatigue and retailer apathy.

• No. It is ridiculous to draw parallels between Black Friday and Boxing Day. The former is a promotion, the latter a sale. One occurs before Christmas (when retailers should be trading at prime levels), the other post Christmas, when the emphasis is clearing excess stock in preparation for the new season. The post-Christmas sales are effectively less an exercise in maintaining margin, more one of clearing the decks and starting afresh. The main downside risk is having too much stock to shift.

If there is one redeeming feature about Black Friday, it is that it polarises opinion within the media and retail analyst community. And is therefore a very good measure for assessing who really understands the mechanics of retailing and who does not. It’s a sideshow that doesn’t deserve the attention it gets.

So, let’s get Black Friday out of the way and espouse what really is ‘The Most Wonderful Time of the Year’. (There'll be parties for hosting, marshmallows for toasting and caroling out in the snow. And scary ghost stories, for reasons that have always escaped me).