Maturing into a profitable black friday? (IRM56)
Is Black Friday 2015 an indication of omnichannel maturity as retailers show improved understanding of the costs, margin mix and supplier and delivery capabilities compared with the 2014 tsunami? Emma Herrod investigates.
The UK public rushed online on Friday 27 November 2015 to grab Black Friday ‘bargains’, leaving many camera crews standing on high streets or in supermarkets without any sign of a fight or a broken TV upon which to report.
Retailers that had been running promotions in the week leading up to Black Friday were inundated with site traffic on the day – more than 70% up on the previous day in certain cases. Some sites coped, others slowed and a few implemented queuing systems or even became unresponsive as systems were unable to cope with the volume of traffic.
Yet again, the weekend proved a record breaker for UK e-retailers. Some £3.3bn was spent online across the four days from Black Friday to Cyber Monday, according to the IMRG. While Cyber Monday, which used to be the big kick start for Christmas shopping, has been overtaken by Black Friday, it still saw sales growth of 34% as consumers spent £968m online.
Black Friday was Amazon.co.uk’s busiest ever day, with more than 7.4 million items purchased – equivalent to 86 every second.
House of Fraser Chief Customer Office Andy Harding said that Black Friday is now a key part of its retail calendar. “The response has been overwhelmingly positive,” he added, as the retailer saw 120 orders a minute through its website on Black Friday, trade up by 40%, and TVs on its site showing as sold out by 10.50am.
John Lewis also recorded the biggest ever sales week in its trading history as it reported sales up 4.8% for the week. As proof of the fact that many people avoided the high street, preferring instead to shop promotions online, johnlewis.com saw sales increase 15.5% on last year during the week. Overall, the retailer said that its sales rose by 27.6% on 2 years and were up 60.1% week-on-week to bring in a record £187.7m at the checkout.
The company says that the stand-out success came from its distribution teams, which, across Black Friday and the following Saturday and Sunday, processed 18% more parcels compared with last year. This equates to 5 units per second during the peak hour.
SALES VS PROFIT
But is Black Friday profitable and sustainable? Andy Street, MD of John Lewis, said before 2015’s event that it wasn’t. However, the company still went into it fully prepared and emerged with sales across the business on the day up 11.9% on last year.
Argos, another Elite retailer in InternetRetailing’s IRUK Top500, said that 2014’s Black Friday rush didn’t deliver a meaningful boost to its bottom line. While its sales on the day grew by 45%, with 13.5m visitors arriving through digital channels, when it came to announce its figures, it revealed that for all the noise and fuss there had been barely any sales growth. So it changed its strategy for Black Friday 2015, shifting the emphasis away from just the one day and running promotions over the preceding weekends as well.
Although the majority of retailers like Black Friday, a third of those surveyed before the 2015 event thought it was unprofitable and unsustainable, according to a study by LCP Consulting.
Asda, which was one of the first retailers in the UK to introduce Black Friday, didn’t run special promotions for 2015’s event, instead reducing the price of fuel by 4 pence a litre over the three days, meaning that its unleaded petrol dropped below the £1 mark. The supermarket is currently undergoing an 18-month Project Renewal programme designed to “work parts of the five-year strategy harder to return Asda to long-term, sustainable volume growth”.
LCP Consulting believes that major retailers with an established omnichannel capability are able to capitalise on Black Friday and measure the true cost of the event. Those without the infrastructure and capabilities to deliver on their customer promise, however, run the risk of alienating consumers and harming long-term sales, according to its Omni-channel Journey report.
Many retailers are discovering that the omnichannel journey is more complicated than they thought and that they have more work ahead than was believed in 2014. “Twice as many retailers compared to 2014 are still in transition to omnichannel, recognising a longer journey. In 2015, retailers are realising that the omnichannel journey will take longer than anticipated. It’s more complex and fundamentally about the whole business, not just sales,” says LCP’s report.
ECommera agrees, saying that only 5% of retailers feel they are at the top of their omnichannel game. While the majority agree that it is important enough to warrant further investment, only a quarter claim that they could see a strong return on investment, suggesting that more work could be needed in order to make it a success. Indeed, 24% indicated to eCommera that they didn’t typically understand ROI before they embarked on omnichannel activity. Critically, potential ROI is at the bottom of retailers’ lists when it comes to planning new services.
While Black Friday saw a huge spike in sales, the customer experience in some cases was far from perfect with site load speeds slowing to more than 5 seconds during busy periods and some sites adopting queuing systems. Shoppers reaching for their mobile devices in the morning peak before work would have been let down by the lack of apps or mobile sites amongst key retailers. So, while retailers offering a good online and mobile-optimised experience saw strong conversion rates before shoppers moved onto desktop devices at work – Amazon, for example, saw use of its app increase by 125% on Black Friday, followed by Argos (115%), according to web traffic monitor SimilarWeb – others weren’t so fortunate. “Overall, this year’s Black Friday saw tablet and smartphone traffic make up 55% of online retail traffic compared with 47% last year,” says Yusuf Rahman, Head of Analytics and Optimisation, Peerius.
Omnichannel, of course, extends beyond the sales devices with retailers experiencing significant benefits in terms of financial and operational performance and customer service as their omnichannel plans mature.
Cyber Weekend sales online
Black Friday: £1.1bn (£763K per minute).
Saturday 28 November: £561m (£389K per minute).
Sunday 29 November: £676m (£469K per minute).
Cyber Monday: £968m (£672K per minute).
While there is the obvious experience for the customer to be considered in omnichannel delivery, the cost to retailers can be significant, especially when considering services such as reserve and collect which extend far beyond the most obvious expense of moving goods from warehouse to store. With retailers reporting upwards of 50% customer no-show on reserve and collect orders, incurred costs include moving the item, lost sales opportunities while the item is on hold and a very real risk of adding to the number of discounted items at season end, especially for fast-paced industries such as fashion.
Each retailer’s risk/reward model will be different. For luxury goods providers with high margins, the cost of moving goods from warehouse to store is a fraction of the overall product value and provides a chance to deliver a differentiated customer experience. For a book seller, by contrast, the distribution cost alone might be 20% of the product’s retail value; add in the no-shows and other costs and the ROI becomes less compelling.
With retailers still getting to grips with the margin mix and cost of omnichannel on regular trading patterns, are times such as Black Friday putting too much pressure on the bottom line?
As retailers better understand the cost of ecommerce and the ROI of omnichannel, it becomes clearer that it is still a cost to the business; most retailers are not charging extra for these services. When asked about click and collect, the majority of retailers are still covering the cost. Of those who do charge for it, only a handful are making a profit. The majority are breaking even (52%), while 33% are making a loss, according to eCommera.
Most retailers do not understand how much it truly costs to make these grand gestures on servicing their online offer, believes consultancy Kurt Salmon. While online was a small proportion of the business, any losses could be absorbed; now that it is a larger percentage of sales, money is flowing out the door faster than it is coming in. Providing a click and collect service in store, for example, costs a fashion retailer around 3-4% of its wage bill.
Retailers are being pulled in every direction trying to outdo each other with the most competitive offers and looking to deliver orders faster than their rivals.
David McCorquodale, Head of Retail, KPMG warns: “Retailers will delight in systems that were able to withstand the peak demand but will yet have to count the cost of meeting delivery deadlines and handling returns next month before they know if this has been a profitable venture or a giveaway gesture”.
International sales add an extra layer of complexity to calculations as more than a quarter of orders over the Black Friday weekend came from overseas buyers, according to MetaPack.
As LCP and eCommera have both noted, retailers are realising that the route to the omnichannel goal is long and winding and one which the City is following very closely. Siobhan Gehin, Head of Strategy and PE at Kurt Salmon, warns that on the back of Black Friday, Cyber Monday and other hot spots in the retail calendar, investors are looking more closely at retail valuations and questioning how well retailers are managing their store and online sales and margins, as deeper promotions and faster delivery options are eating into profits.
As a result there could be some swift downgrades between now and the spring.
MAKING BLACK FRIDAY MOBILE
Looking at the leading retailers’ web traffic levels compared to an average Friday, Amazon UK received double its usual amount of visits on Black Friday, while traffic to Argos was up over 200%. It was down on last year’s Black Friday level though, according to digital analytics company SimilarWeb.
On average, retailers saw a 12% reduction in their website traffic on Black Friday 2015 over 2014’s level from desktop devices.
One retailer bucking the trend was House of Fraser which saw an increase in traffic of nearly 30% on Black Friday over 2014’s level and almost five times the amount for an average Friday. According to SimilarWeb, House of Fraser with a 26.6% increase also saw the biggest year-on-year growth on Black Friday when mobile traffic was factored in too. Debenhams (23.7%), New Look (15%), Etsy (15%) and Boots (10%) also saw increases.
Apps were also widely used by shoppers on Black Friday with SimilarWeb reporting that Amazon’s app received a 125% increase in usage over 2014’s level. This was followed by Argos which saw a 115% rise in its active app usage on the day and eBay with a 35% increase in app use.
Moshe Alexenberg, SimilarWeb Director of Digital Insights said: “Year-on-year growth on Black Friday declined as retailers spaced their promotions over a longer period. Shoppers realise there are deals to be had before and after and seem to be holding out for the best bargains."
“We are seeing in the way that shoppers visit the sites that they are keeping an eye on deals and returning throughout the day. This year however has been the year of the app, with the leading sites providing a seamless service across their apps, mobile and desktop.”