Andy Mulcahy, strategy and insight director, IMRG examines retail performance over Black Friday 2018 and looks ahead to the 2019 peak.
The following guest article has been written for InternetRetailing by Andy Mulcahy, strategy and insight director at IMRG, the UK’s industry association for online retail. IMRG helps its members understand and improve their online retail performance through a busy programme of performance benchmarking, data analysis, insight, best practice-sharing and events.
Things are pretty tough in retail at the moment. The challenges around evolving the high street are well documented and seemed to reach a tipping-point as we entered 2018 – exacerbated by low customer confidence, struggling footfall and high rents (not even an exhaustive list).
Against this difficult trading backdrop, Black Friday and Christmas peak trading was a bit underwhelming in 2018 – which was a shift, as earlier in the year online retailers seemed to be thriving rather than surviving. Online sales growth was +15% in the first quarter, rising to +18% in the second quarter. But then the growth rates dropped as we got toward peak (see chart 1). Why? Multiple reasons perhaps, but chief among them was the spread of discounting that dragged so many retailers into wider and heavier rates than they would have liked.
This is something we were able to quantify. A metric we track at IMRG is the percentage of revenue generated from items that are on sale or have a discount against them. During the third-quarter of 2018, it was up by over one-third compared with the same period in 2017. What this means is that there was already an awful lot of very heavy discounting going on.
And then the Black Friday period arrived. As a result, and again there might be multiple factors influencing it, online sales growth over that period was a bit subdued. Black Friday the day itself was up +7.3%, which doesn’t sound too bad, but it was against a forecast of +13.2%. Black Friday week (eight-day period, Monday to Monday) was up +6.8%, but against a forecast of +12.5%.
So did the volumes just get pushed around a bit because of Black Friday occurring before the final payday? The simple answer is no. November as a whole didn’t capture a higher-than-expected share of sales, and December’s online growth was the lowest we’ve recorded in 18 years of tracking.
There’s no getting away from it – peak trading was just not very good in 2018, and trading conditions in 2019 have continued to challenge with growth only getting above single-digit once (in February; +10.7%) during the first seven months.
So – the perennial question – is Black Friday now ‘over’? Or are we heading for another tough Black Friday period and, if so, what can you do to plan for it?
In spite of all the push-back, negative news and challenges to margin that Black Friday brings, any reports of its demise are likely to fall wide of the mark. The fact is that it is such a big deal, with such wide awareness among the public that, even if lots of big-name retailers refused to get involved, there would still be plenty that do and they would then be very well-placed to mop up a lot of the traffic and sales available during that period.
Which isn’t to say you have to get involved of course. In 2018, we had a few well-known retailers in our sample who actively did not promote Black Friday discounts; all of them actually recorded positive growth on Black Friday (which isn’t to say they didn’t promote some kind of sale).
So you don’t have to, but many of your competitors probably will. The second chart shows participation in Black Friday-specific campaigns for 210 retailers in 2017 and 2018, plotted against the days in November when their campaigns were live. Comparing the two years, there isn’t much difference – only five more had campaigns live on Black Friday in 2018 than 2017. The most notable shift was in retailers launching earlier – 19 more were live on the Monday leading into Black Friday week.
The highest weekly concentration of sales (35%) for November occurred in the week leading into Black Friday. There’s no reason why you can’t run a successful campaign outside of that week, particularly targeting your most engaged or profitable customers, but we have to remember that Black Friday is an event of huge scale that also attracts people who are not dedicated or regular shoppers. They are probably not committed enough to pay much attention further out from the big day.
Whenever there is a big event with a big retail focus, retailers compete strongly over marketing messages. Doing something original, interesting or engaging can give a useful boost in that respect – consider how big a deal Christmas adverts are, for example, the success or otherwise of which can exert quite an influence over sales performance.
Black Friday tends to be different. It’s about the promotion of a large headline number (‘50% off’), quite often against a blank, black background and supported by advertising that stresses the incredible, best-of-year value of the discounts available. Dogs on trampolines and Elton John it ain’t.
Should you try to do something to stand out then? Is it so standardised and unimaginative that it’s ripe for disruption? Maybe, but while it may be possible for a retailer to do something surprising that really captures the public’s attention, from the customer perspective Black Friday is specifically about lots of retailers offering high discounts on products. It’s a frantic experience, where people visit more retail sites than they normally would, in the hunt for a good deal. The expectation is perhaps different from other times of year.
We saw several examples of gamification used last year – spin to win, mystery discounts, lucky dip – but for all the effort required to build the software, is it likely to really engage shoppers and drive sales? Generally speaking, we remain unconvinced. We also saw some retailers using complex messaging – ‘60% off plus a further 15%’, ‘39% off’ – again, it’s a frantic experience and being really clear about the offer is probably safer than trying to stand out too much.
The pressure on margins when such heavy discounting is in place is a constant complaint about Black Friday. Where is the value for retailers when the event requires so much work for relatively little reward?
Perhaps the best way to measure it is to take the longer view. Black Friday provides a great opportunity for new customer acquisition; these customers (or just subscribers, if they don’t complete a purchase then) may not be very profitable at that point, but if there is a well-structured marketing plan for converting them into better margin customers over a 12-month period, then the hit can be balanced out.
Campaigns can also be used to influence use of other channels, such as apps. Some have used Black Friday to strong effect in driving app downloads, either by advertising that some deals are only available through the app or by offering exclusive additional value for sales made through that channel, such as free delivery. Once they have the app, if they can be encouraged to use it over the longer-term they may prove to be far more profitable customers.
Clearly every retailer has their own strategy for, and unique challenges around, Black Friday but it has been around for several years now which means we have plenty of experience.
The best bit of universal advice would be to learn from the past. You don’t have to repeat every detail exactly the same each year, but you know what has worked before and what hasn’t. Trying to be too radical at such a key part of peak might not be the most sensible approach.
And, of course, smile; Black Friday is fun, remember.