What is it?
On Black Friday, the day after Thanks Giving and Cyber Monday the first day of the following week some the best known retailers in America offer large discounts resulting in the biggest two days of shopping in the year.
Retailers traditionally made enough sales to put them “in the black” for the year on Black Friday but with just-in-time inventory management profitability is now spread throughout the year.
Black Friday matters for holiday sales
Most retailers’ profitability for the entire year is dependent on how they perform during the holiday period and Black Friday has become a leading indicator for how well holiday sales may fair.
Like any one indicator Black Friday sales aren’t perfect; company shares shouldn’t be bought on Black Friday performance alone but a successful Black Friday campaign corresponds to customer engagement and a dynamic business that should lead to rising earnings.
Collectively Black Friday sales can provide a more macro insight into the health of the overall economy. Bigger Black Friday sales all things held equal should demonstrate more consumption that will drive a consumer-led economy forward.
Black Friday maybe copying the US but it works
Big US companies including Wal-Mart Stores Inc (NYSE:WMT), Best Buy Co Inc (NYSE:BBY) and Macy's Inc (NYSE:M)’s are known for the large crowds stampeding their stores as they open on Black Friday.
The rise of Amazon.com Inc (NASDAQ:AMZN) and Cyber Monday has seen the concept spread to the UK with John Lewis Of Hungerford (LONDON:JLH), Argo (NASDAQ:AGII), Curry’s PC World and ASDA getting in on the fray. Sebastian James, chief executive of Dixons Carphone (LONDON:DC) owner of Curry’s PC World, said the Black Friday weekend is now the second busiest sales period after Boxing Day.
The theory goes that in the US, Black Friday price cuts serve the purpose of getting Americans shopping after Thanksgiving ready for Christmas. Realistically, do Americans need any excuse to go shopping?
The truth is that Black Friday deals are mostly not that great for the consumer; there are definitely some great bargains to be had on Black Friday but they are the minority. The successful US retailers use “door-buster” deals to get people into the stores or online. Most of the offers exaggerate savings by comparing the sale price to the manufacturer’s suggested retail price; the saving when compared with the every-day price of the item is often a lot less.
Which companies stand to gain from Black Friday?
The American companies in Britain, particularly Amazon and Wal-Mart (ASDA) have a head start on British competition because of their experience of pricing Black Friday deals in the US.
Last year Amazon reported their single-biggest sales day on Black Friday only to beat their own record three days later on Cyber Monday. The stock has been in difficulty this year as expansion has come at the expense of profits, a strong holiday shopping season will go a long way to demonstrating to investors the investments were worth it.
UK retailers have experience of discounting during Boxing Day but that could actually serve as a disadvantage. There is a genuine reason for Boxing Day; retailers wish to unload last year’s stock ready for the New Year which can mean there are some genuine bargains.
The British retailers that will fare the best are the ones that will price their Black Friday deals correctly so as to attract shoppers without giving away too much ahead of the main Christmas shopping season. Any retailer with too many good deals on November 28th will be an early warning sign of getting their Black Friday strategy wrong; the result maybe higher revenues at the expense of profit margins.
There was one report of a fight over a large screen TV in ASDA last year but the UK’s take on the holiday has so far been an internet phenomenon. It will be those retailers with the best online-presence that stand to gain the most from Black Friday.
Argos parent company Home Retail Group and Dixons-Carphone are legacy electronics retailers and still rely on footfall for the bulk of their revenue. As Black Friday gains in popularity the old electronics retailers stand to benefit. While the emphasis stays online with Cyber Monday; Dixons-Carphone may lag Argos which has a successful online catalogue and tie-up with eBay for click and collect services.
Black Friday has so far focused on electronics in the UK but there is an opportunity for apparel retailers; this will likely led by US companies like Gap and L Brands (owner of Victoria’s Secret). UK retailer Next Plc (LONDON:NXT) has successfully built its online presence and could use Black Friday to put itself front and centre in shopper’s mind before they do their Christmas shopping online.
The gremlins appear to have disappeared from Marks and Spencer’s website so Black Friday will be a defining moment for the company’s internet ambitions which could lead the way for improvements already seen in its general merchandise division in the first half of the year.
It’s perhaps not a coincidence that ASDA had the most comprehensive Black Friday offering in 2013 of all the big four supermarkets and has been the only one to hold its own in 2014. Black Friday was an opportunity for ASDA to market itself as good value and the rest of the big four are looking to catch up this year. Black Friday is a good opportunity for Tesco (LONDON:TSCO) to build on the popularity of ‘Tesco direct’ its online store whereas the holiday could highlight the problem of Morrison (LONDON:MRW)’s minimal web-presence.
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