We seem all too happy to follow US fads; Halloween and “have a nice day” continue to grate on me. One of our latest adoptions is Black Friday. I set out to look at the impact on retail profits and the issues I found shouted out cautionary notes to all retailers.
My starting point was the feeling that the whole thing is a con, isn’t it? How can the retailer afford to discount by an average of 23% (source: TheBalance.com) when, for example, department stores only make 3.2% net profit (source: SmallBusiness.com)? Are they ripping me off the rest of the year? Should I only shop on Black Friday?
In the US there seems to be no stopping the steady growth of Black Friday sales. Average sales growth on Black Friday is 3.5% per year for the last decade (source: TheBalance.com). The UK growth was about 20% this year.
The issues that should put off many a retailer are greater than just lost profits. This is what Eden Dwek of KPMG had to say about Black Friday:
Aside from the clear hurdles such as ensuring stock availability and suitable sales staff, the ripples of Black Friday and Cyber Monday are seen by retailers in the weeks that follow, as impulse purchases are returned and items damaged during delivery are replaced. Above all, the biggest hurdle for most companies is around maintaining website continuity; as unresponsive pages will send social media into overdrive and can cause short-term revenue loss and long-term reputational damage. (source: KPMGtechgrowth.co.uk)
Negative brand impact is a less obvious, but real, issue for retailers. At the same time as losing money, a retailer can devalue their brand. That doesn’t sound good, does it? The reality is that brutal discounting changes the profile of a brand’s customers, and not for the better. See the article at TranslateMedia. At the extreme, it is estimated that as many as one in five sales are being sold on (source: ThisIsMoney.co.uk):
There’s also some evidence that some of these mercenary consumers may be engaging in retail arbitrage – selling the discounted goods on for a profit.
In summary, Black Friday appears to be bad for profit, bad for the brand, can equate to wholesaling not retailing, and doesn’t make the customers love the brand. But I wholly expect it will grow again next year, but without my help.