With Black Friday fast approaching, we take a look at the mammoth sales day and consider the possibility that it might be a step too far? There appear to be a number of stories for how black Friday got its name, though the idea that that it was the day on which retailers moved into the black seems highly improbable. How do you make a profit if you are throwing away margin with such abandon? From last year’s experience it seems more appropriate to describe Black Friday as the day when customers and retailers both received a black eye. Black Friday is a bonkers idea but now the genie is out of the lamp it may prove difficult getting it back in.
Why bonkers? The first reason is the mayhem it causes. The fights that broke out on Black Friday were a sight that no retailer is going to want to see repeated. In future they will have to hire in extra security at some considerable cost. Secondly, these sudden spikes in demand are a supply chain nightmare as they incur additional cost throughout the supply chain, through having to lay on additional staff and vehicles. Very recently Amazon announced plans to extend its Black Friday promotion to almost two weeks in order to grapple the demands of the biggest shopping day of the year.
Some would argue that these promotions are worthwhile because they drive additional footfall and maintain market share, but do they? Many shoppers who wanted to do their normal weekly shop were horrified by what they experienced on Black Friday and are unlikely to do the same thing next year. And it’s not even as if retailers were using the opportunity to clear excess stocks. Black Friday promotions are almost all based on stock bought in specifically for the purpose. It’s also very doubtful whether these events generate any additional sales. Particularly in the run up to Christmas the vast majority of shoppers have a limited budget to work to so any money they spend on Black Friday is money they will not spend later.
So costs up, gross margin down. What’s the point?
During the 80’s and 90’s retailers became increasingly attracted by the power of promotions. The increased sales were very welcome, that is until it was realised that these promotions added far more cost than income. The development of direct product profitability and cost to serve models brought some companies to their senses by helping them realise just how much these promotions were costing them. As a result, a number of retailers cottoned on to the idea of everyday low pricing. This helped a lot in building brand loyalty (why shop around when you know you will always be getting good prices) and, just as importantly, helped smooth out the supply chain so making it more efficient and reducing costs. Even those that did not fully go down this route saw the benefit of reducing their reliance on promotions and they declined somewhat over the years.
More recently though the rise of the internet and the discount retailers has placed the more established companies under increasing pressure and the lure of the promotion as a way of digging themselves out of trouble seems to have become irresistible once more. And even if some retailers do decide that it’s all counter productive, customers will be expecting it again next year. After all us canny shoppers do love a bargain.