Most UK retailers now consider Black Friday unprofitable, a new study suggests.
Researchers for the Future of Retail report from LCP Consulting questioned more than 100 retailers in the UK and US. Some 61% of UK traders questioned saw Black Friday as an unprofitable and unsustainable promotion, up from 32% in 2015. But in the US, a relatively low 35% saw it as unprofitable.
The research also found that a third of UK retailers have seen returns increase over the last 12 months. Most say they see an increased proportion of returns following peak trading periods such as Black Friday. Black Friday 2015 saw a marked increase in online sales compared to store sales and this trend is expected to continue for Black Friday 2016 – with an associated impact on returns volume.
LCP uses retail market data to estimate that 5m parcels bought on Black Friday will be returned, with Londoners returning up to 27% of purchases and Scots returning the least, at 19% of purchases. As a result, retailers will need to manage daily returns as they grow by an extra 50% in the week following Black Friday.
Shoppers are also expected to want their parcels faster. LCP predicts that next-day deliveries will be 20% up on last year, with 7.5m parcels expected to be delivered the following day. Next-day click and collect volumes are also expected to rise for Black Friday. However, LCP data suggests that customers will only collect half of the anticipated 3.5m Click and Collect orders the next day.
“The true profit impact of Black Friday is not driven by sales increases and gross margin; it is driven by the additional operating cost and the complexity of managing operational peaks,” said Stuart Higgins, retail partner at LCP Consulting.
“Managing picking and packing volumes is one thing, but you also need to have contingency in place to ensure delivery against service promises – no matter what the eventuality. Retailers must also manage the processing of returns in a timely manner to credit the customer, and to get the merchandise back on sale to avoid the risk of having to mark down. Fashion returns are even more important, as these can be as high as almost two thirds of orders.”
The LCP research found that Peak events polarise behaviour, with some retailers having high levels of control and organisation to managing peak, whilst others admit to an uncontrolled and chaotic approach. Having the flexibility to manage peak periods, such as Black Friday and Cyber Monday, has emerged as a key development for retailers, with almost half (50%) citing peak management in their top five considerations when developing their supply chain capability.
Higgins said: “The majority of UK retailers claim that Black Friday is margin erosive and unprofitable. The key question for 2016 is how many more retailers will follow Asda’s lead from 2015 and shun Black Friday involvement in favour of deeper promotions across December, or will perceived competitive pressure lead many to continue to drive Black Friday sales despite the prospect of short term losses and the potential for service disruption?”