Black Friday Has Overstayed Its Welcome For British Retail: Gadfly
British retailers were trying to go cold turkey on Black Friday. The trouble is, they just can't seem to kick the habit.
Black Friday first crossed the Atlantic six years ago, when Amazon.com, Inc. began offering discounts in Britain, and domestic retailers quickly followed suit.
Since then, Britain's Black Friday has grown exponentially. By last year, 44% of consumers surveyed by Verdict Retail, a research group, participated in either Black Friday or Cyber Monday, the discount event coinciding with what was, for many years, the last date to order online for delivery by Christmas.
Retailers have always peddled special offers over the last weekend in November, which frequently coincides with payday, as they fight for holiday shoppers, but the escalation of this into a week-long discount frenzy makes no sense. It's not as if Brits are taking the day off after Thanksgiving.
For non-food retailers, the fourth quarter can account for almost half of annual profits, so selling goods that they would have probably shifted anyway, but at a reduced price, is pointless. Retail margins aren't exactly bloated in the first place.
In the age of online retail, there's even less rationale for offering discounts to lure people into shops. Last year, customers turned away from what had become 'Black-Eye Friday', with battles in shops for cut-price TVs.
Blanket discounts invariably means that best-sellers move faster, but returns can be up to 50%, as people buying for themselves purchase several sizes of a garment to work out the best fit at home, and return the rest over the next three to four weeks.
The time it takes to get stock back on the shelves or available online means that they won't be there before Christmas and will end up in bargain bins after the holiday. That's a big loss of potential profit.
This year, a band of retailers decided to ditch Black Friday altogether. These included Wal-Mart Stores, Inc.'s Asda, an early adopter of the event. About 25% fewer chains were participating as of the start of the week, according to Richard Hyman, an independent retail analyst.
However, some retailers are going full throttle, as the threat from Amazon hasn't gone away – and Gadfly has argued that the period may even represent an opportunity to challenge the giant. Dixons Carphone Plc and J. Sainsbury Plc's Argos all plan for the event long in advance and draw on the support of their big suppliers to provide discounts. Tesco Plc, Britain's biggest retailer, may do the same.
Tesco is an example of the cost of Black Friday: it wants to double profit margins by 2020, and given that they're notoriously thin in categories such as electricals, the markdowns are still probably ones that it could do without.
Even in the US, there's already evidence that the event – at least in physical stores – has its limits.
American electronics, apparel and toy retailers have little choice about whether they should join in – 15% of holiday sales occur during Thanksgiving Week, according to the National Retail Federation – but a recent move to open on Thanksgiving Day didn't make sense for a number of retailers, which weren't attracting the crowds to justify keeping their stores open. Costco Wholesale Corp., Nordstrom, Inc. and T.J. Maxx parent TJX Cos., Inc. wouldn't open on Thanksgiving Day. People can order online, anyway.
Black Friday aside, Christmas is likely to be a decent one for UK retailers. Neither Brexit nor faster inflation has really hit the shops yet. In fact, the prospect that food and fashion prices could rise next year – they could climb up to 5% – may encourage some shoppers to buy now, before prices go up later.
Conditions in Britain will undoubtedly be more difficult in 2017, so if retailers didn't get their addiction to the discounting drug under control this Black Friday, they need to go into rehab in time for next year.
By Andrea Felsted and Shelly Banjo. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.