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Beating Black Friday

In the past three years Black Friday in the UK has moved from being an American novelty to a “must-do” promotion. Penelope Ody examines whether it really brings extra revenue or simply spreads sales and reduces profits.

ASK MANY retailers about their views of Black Friday and, as Dan Murphy, Partner with consultants Kurt Salmon, puts it: “They would love it if it went away. It causes a huge peak in logistics demand and leads to website meltdown”. A few – notably Dixons and John Lewis – have eulogised over the resulting boost to sales, but for many others it has simply moved the December pre-Christmas shopping peak into November and reduced sales in the following weeks – a trend that is even visible in Dixons’ Q3 weekly sales graph.

Long ago and far away, retailers used to make the most of Christmas shopping demand by delaying discounting until Boxing Day – those with even longer memories may recall when the “clearance sales” never started before the New Year. To slash prices at a time of peak consumer demand does rather fly in the face of received retail wisdom. “[Black Friday] is an unnecessary evil to bring to these shores,” says David McCorquodale, UK Head of Retail at KPMG, “for most people it coincides with the last pay cheque before Christmas so is a time when retailers would have expected full price sales.”

In the US, Black Friday promotions make some sort of sense, coinciding with the Thanksgiving long weekend holiday. In the UK there is no such logic. Amazon started it in the UK back in 2010 with a “Black Friday Deals Week”, followed in 2013 by Walmart subsidiary, Asda. Last year Asda eschewed the event: “The decision to step away from Black Friday is not about the event itself,” said Asda President and CEO, Andy Clarke, at the time, “… this year customers have told us loud and clear that they don’t want to be held hostage to a day or two of sales.” In the event, Asda’s sales continued to slide by 5.8% for the 13 weeks to January 1 2016, although only 0.4% of that was attributed to an absence of Black Friday offers.

In 2015, of course, it was not a “day or two” of sales as many retailers chose to spread offers over the course of the week. Stores fared less well than online, and – unlike in 2014 – carriers coped reasonably well. Those who did participate generally claimed benefit: “…a new shape of peak trade was firmly established with Black Friday marking our busiest single day,” declared John Lewis’ annual report; Debenhams boasted a 20% increase in year-on-year online orders; while the BBC reported that Amazon had sold “7.4 million items” on the day. It wasn’t all plain sailing: Marks & Spencer admitted its distribution centre had struggled to cope; Argos confirmed delays on its site after “extremely high levels of visits”; Tesco reportedly also had site problems; while John Lewis said that its website had been down “for a short time” – which is where some of the hidden expenses associated with Black Friday start to stack up.


“No-one is measuring the cost,” says Dan Murphy, “they’re not looking at how much investment is going into generating that business. There may be a spike in sales but if you add in margin dilution, logistics costs for free delivery, and the fortunes spent on website improvements to avoid those high profile crashes, you soon start to destroy any benefit. You also don’t hear about returns: maybe they did sell £45 million of goods on Black Friday – but perhaps £15 million’s worth came back a week or two later.”

Margin dilution was avoided by some retailers by planning those eye-watering deals early – negotiations for some started almost immediately after Black Friday 2014. As David McCorquodale points out, “…in 2015 the focus was on electricals. Retailers, like Dixons worked with their suppliers to create cut-price offers – but it was the suppliers who took a lot of pain as a result”.

In contrast, Black Friday 2014 had been dominated by cut-price clothing, largely due to a mild autumn that left fashion retailers over-stocked with winter wear. In 2015, with more seasonal weather and better sales, Next and Fat Face were among those shunning Black Friday, while Jigsaw offered a token 10% discount. All turned in good Christmas sales figures of full-margin products, and as Peter Ruis, Chief Executive of Jigsaw, said at the time: sales were made at higher prices and the range was not decimated by the Black Friday stampede. “It’s a double whammy,” he said. “Being full price means you are fully in stock with two weeks to go [before Christmas]”.

While the rationale for Black Friday promotions is debatable, many analysts suggest that it is here to stay because consumers expect it and because some retailers – no doubt including Amazon – will continue to focus on the event come what may. Rather more worrying, some even predict that the Asian “singles day” – already twice as big as Black Friday – could be introduced here once we get past 11 November 2018, and the significance of the date has less meaning for a younger generation of shoppers. Consumers certainly like bargains and many shop mainly by price, but no-one has suggested that Black Friday increases total spend – it simply creates a new peak, deeper troughs and year-on-year Q4 sales have continued to be broadly comparable, so Black Friday produces little change in total consumer spend.

Given typical November weather, it is hardly surprising that buying Black Friday bargains online is preferable to visiting the high street – a trend which Dan Murphy suggests will be even more noticeable in 2016, increasing both those hidden costs and concerns over the resulting margin erosion. “There has to be greater transparency over costs,” says Murphy. “Too many retailers still use like-for-like sales as a measure of success, but they really need to look at profit. Earnings are being diluted and that is going to bring pressure from the City.”

Some hope that offering click-and-collect or free returns to store could provide an opportunity to up- or cross-sell full-margin products, others, adds McCorquodale, are “…disaggregating the offer, so that while the item may be really cheap, additional services, add-on products or delivery are at a premium, so margin may be recovered that way.”

Carriers, too, are raising alarm bells. As Dick Steed, Yodel’s Executive Chairman said earlier this year: “Retailers haven’t quite grasped you can’t provide next day delivery at this rate, not this Black Friday, next year or the year after. Reserve next day delivery for people who really need it and for everyone else, for goodness sake, they’ve had the bargain of a lifetime, but it might take 3-5 days to deliver.”

Is Black Friday sustainable? Possibly – if, as with Amazon, profit is not a priority and there are suppliers willing to make low-margin, bargain basement lines. Can retailers choose to ignore the event? Certainly – those who opted out of Black Friday in 2015 do not appear to have suffered, if anything their full-margin sales were helped by increased footfall on the high street. With growing awareness of the need to measure the true cost of online sales, we may also find CFOs pressing alarm bells.

It used to be said that if you couldn’t sell products at full price in the run-up to Christmas you weren’t much of a retailer. Judging from recent practice, Black Friday is a sad indictment on the current performance of many of our leading household names.

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