Entrepreneurial

Holiday sales like “crack” for retailers

January 5, 2010

Over the last few years Black Friday and Boxing Day have become the two biggest sales days on the U.S. retail calendar, but some experts say it may actually be bad for business.

According to ShopperTrak, Americans spent a total of $10.66 billion the day after Thanksgiving and $7.9 billion on the day following Christmas, making them the No. 1 and No. 2 sales days respectively. Overall, ShopperTrak said holiday sales volumes were up 1.6 percent over last year.

So what does this really mean for struggling retailers, especially small businesses that can’t match the door-busting discounts offered by retail giants like Wal-Mart, Best Buy and Future Shop?

“The current frenzy of sales activity is just purely being born out of desperation on retailers’ parts,” said retail industry veteran Doug Stephens, who recently started his own consultancy firm – RetailProphet – after having formerly worked for big-chain retailers Wal-Mart, Home Depot and Lowe’s.

Stephens said huge one-off sales events, like Black Friday and Boxing Day, that have become more prevalent over the last decade, don’t make much business sense. Stephens likened these sales blowouts to an addiction on behalf of retailers, who are seemingly unable to stop themselves from buying into the hype.

“CRACK FOR RETAILERS”

“They’ve become almost like crack for retailers,” Stephens said about Black Friday and Boxing Day offers, which he added can end up hurting your brand. “It’s become something that I think a lot of retailers are just frankly addicted to. But they’re looking at the numbers and they’re saying we did this kind of sales volume last November or December and we have to do it again this year. There’s no way that we can get off the crack.”

According to the National Retail Federation, this year overall Black Friday sales were up marginally over last year (0.5 percent), but were accompanied by a sizable drop – 8 percent – in the average amount spent by consumers. But the mixed results are unlikely to stop retailers from going big again next year. Stephens said there is a bit of a high-school mentality at work, as businesses end up participating mostly because everyone else is doing it and they don’t want to feel excluded.

“A lot of brands that might be better served not participating in these things are simply looking at it and saying will we be conspicuous if we don’t participate? Would we upset customers if we don’t ante up on Black Friday?,” said Stephens, who added that discounting may lead to more customers and increased sales, but that doesn’t usually translate into heightened profits. “I think a lot of it is just hype and hysteria – it’s not serving any meaningful business function. It’s not a profitable activity. I think for a lot of companies it’s a waste of time, energy and money.”

Marshal Cohen, the chief industry analyst for retail marketing research firm NPD Group, said participating in Black Friday or Boxing Day sales events against big-box retailers is a “sucker’s bet” for small businesses.

“It is very challenging for the smaller businesses to get into the Black Friday game,” said Cohen, adding that small retailers should still open their doors, but restrict their activity to offering great customer service and not trying to undersell the big boys. “There is an advantage to being on sale, but to get caught up in trying to get people to come in with the door-buster deals it almost doesn’t pay, because you’re not going to beat Wal-Mart at the lowest price. What they do have the ability to do is to showcase what their advantages are: better services, better quality product, better knowledge of the product.”

NOT ALL BAD

Cohen said the real news of this year’s Black Friday sales is that there was no bad news for retailers, unlike last year when stores slashed prices by as much as 75 percent and ended up losing money.

“The good news is that the consumer did come out and did spend and the retailers don’t have to push the panic button,” said Cohen, who added that Black Friday generally represents just 10 percent of total holiday sales volume, so it should not be looked to as a retail bellwether for the next 12 months. “If anybody sits there and tells you that they can tell from Black Friday that it’s going to be a good or a bad year isn’t reading the tea leaves right.”

Cohen said the real importance of Black Friday is not the dollar volume in terms of sales, but what it means to the retailer’s bottom line. He said that by realizing sales at 40-percent off, as opposed to 75 percent, the retailer is actually making money this year.

“The real key here is who’s going to be able to generate a profit this year and that is going to be the measuring stick. The issue is who’s going to return to black – profit wise – not Black Friday wise.”

Comments
5 comments so far | RSS Comments RSS

Those two days of last year, the roads were packed, the aisles were all packed, we couldn’t even buy something the store was so packed.

Posted by JaxJaxson45 | Report as abusive
 

Extended holiday hours are in the same vein. A mall in Louisville KY (the name escapes me) ran regular hours last season and (over the whole month) had the same number of customers and sales in line with everyone else. The cost of being open an extra 3 or 4 hours probably isn’t worth the reduced number of customers in the store at a given hour.

Posted by drewbie | Report as abusive
 

The national temp association announced the first rise year over year in temp jobs since April 2008. Good sign for retail. Read a bizarre job hunting story at http://storyburn.com

Posted by hambo | Report as abusive
 

Sorry to say the retail puts a guilt trip on consumers to buy. I saw so many people who looked like homeless people buying big screen tv’s because they would rather buy that then buy decent cloths. American’s have become so addicted to electronics its very disturbing. That could explain a lot of our fat society who sit around like couch potato’s eating junk food. Good thing we are getting national health care. But our increasingly unhealthy society will eventually bankrupt us. How great is it that American’s not only suffer from poor spending habits, but also are in poor health too.

Posted by jscott418 | Report as abusive
 

The scope of this article is the U.S., but it refers to Future Shop and Boxing Day, neither of which exists in the U.S.

Posted by Michael.Bunney | Report as abusive
 

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