History
There’s no escaping Black Friday.
Claimed to be imported to the UK by Amazon in 2010, Black Friday has now become the official start of the Christmas shopping season, with shoppers predicted to have spent £4bn over the 2016 Black Friday weekend.
It started back in the 1940s in the U.S. The day after Thanksgiving, retailers would offer huge discounts, and families would flock to these stores in order to pick up some bargains. This discount day has become to be known as “Black Friday”, named after the point in the year in which retailers moved out of debt, from the “red” to the “black”.
Cheap T.Vs and massive discounts sound great in terms of enticing customers to part with cash, but are these discounts a risk too far in terms of profit margins? How will this effect retailers in the long-term? And can Black Friday keep generating more revenue year on year?
Profit Margins
Antony Poole, the EADA International Master in Marketing, warns of Black Friday’s consequences for retailers: “Black Friday is not value creation but value destruction”.
This issue with discounts are that price promotions largely stimulate temporary elasticity of demand in terms of purchases, but do little to improve elasticity of consumption. In simple terms, people will buy more and more people will buy in a given moment, but, most of the increase is represented by people who have simply time-shifted a purchase they would have made anyway.
Gary Booker, CMO at Dixons Retail, stated that Black Friday “takes sales out of what would have been key early weeks in December.” In effect, footfall into stores in the UK declined by almost 3% in the first week of December 2015. Research using Barclaycard purchase data from 2015 also showed that people delayed purchases throughout November waiting for Black Friday deals.
In reality, it’s not great news. These are discounted sales, which means low profit margins, at a time when British retailers would traditionally have been selling at full-price in the run-up to Christmas, the busiest period of the retail calendar.
Volume is key if profit margins are low. But high margin, high volume is much, much better.
So, consumers enjoy the discounts. But investors in British retailing stocks beware.
The only thing that matters at the end of the day is the profit the retailer has made during the whole of the critical Christmas trading period. And you won’t know that until the retailers take stock come January
The Future
The future of Black Friday will rely on customer experience and the offerings driving demand. People need to feel like the While more bargain hunters opened their wallets for Black Friday this year, on average they spent a little less than in 2015.
To better understand where Black Friday in the U.K may be heading, we should look to the much more established event in the U.S. In 2016, more than 154 million consumers shopped in stores and online, which is 3 million more than last year, according to a National Retail Federation (NRF) survey released Sunday. But the NRF also claimed those consumers spent about $10 less on average – about $290 this year compared to nearly $300 in 2015.
So the Black Friday sales are still increasing, which is promising for retail. But, the most important lesson to be learnt from this year’s Black Friday in the U.S is the huge increase in online sales. Consumers spent $3.34 billion shopping online on Friday, a 21.6% increase from the same day last year, according to Adobe, which tracks online retail transactions.
Effectively utilising this strong online trend is key for retailers to ensure Black Friday is still a profitable event.
Our research
Of the £2bn spent on Black Friday in the UK (£1.39M a minute), £1.27bn is predicted to have been spent online.
At 140 we can analyse online social conversations to determine if Black Friday interest has increased since its introduction, and use this data to make informed predictions about its future.
Our analysis has found that overall Black Friday conversations have increased slightly on last year, intent-based conversations have only increased by 0.1%. This occurred even though deals/offers-based conversations also increased from 2015.
This shows that although conversation is increasing from 2015, intent to buy remained almost stagnant, even with more deals on offer.
Our online analysis shows that both overall Black Friday conversations and purchase intent conversation is slowing. Has the UK hit its Black Friday spending ceiling?
Probably not. Particularly as actual volume of sales remains on the increase. But a slow down in the intent of customers to buy things may indicate that interest is waning and expectation is increasing. Therefore retailers may need to breathe some new life into their sales incentives (and manage non-sales expectations) or risk being pushed back into the red.
We will update our findings when we look at how pre-Christmas spending and January sales have been affected by this year’s surge in spend.
