Why is Black Friday making retailers blue?

Originating in the U.S. as part of the Thanksgiving holiday celebration, Black Friday discounting arrived in the U.K. in 2013 via Walmart affiliate, Asda, and, as other retailers followed suit, has quickly become a key date in the UK shopping calendar, with electronics and fashion items especially popular. This year it falls on the 25th November with bargains available online from midnight, but for retailers the one day shopping bonanza is not entirely welcome and debate continues about the sustainability of this annual event.

In the U.S., where it all began, there is concern over Black Friday ‘creep’ in which the focused day of shopping after Thanksgiving has begun to spread into Thanksgiving itself as retailers attempt to win as much market share as possible. Others, such as Mall of America are making a virtue of closing on Thanksgiving, showing respect for the holiday and for their employees, to win public approval. Sports retailer REI will close on Black Friday itself, encouraging customers to “#optoutside”, and hopefully make their purchases for ‘opting outside’ throughout the rest of the month.

In The Guardian newspaper, David McCorquodale, head of retail at KPMG, explains the negative impact of building up customer expectations for a big discount day at the end of the month – “Last year, Black Friday was bigger than Christmas, with promotions running over four days, so people are holding off spending and that diminishes retailers’ sales in the weeks before and after”

In the U.K. retailers are aware that it is a difficult trend to reverse with so much revenue generated in one day. Fashion retailer Jigsaw, not wishing to participate, but recognising that there is customer expectation, has explained their position in their pricing manifesto. By sticking to traditional bi-annual retail sales they hope to reassure their customers that the quality products bought at full price one week will not be slashed the next and that reductions in the sale will be end of season stock only. Ted Baker boss, Ray Kelvin, was quoted in Retail Week saying “No-one wants Black Friday” – they would prefer not to be involved but their concessions in participating department stores makes it difficult for them to avoid.

The concern, particularly with fashion retailers, is that customers have been educated to expect discounting when they could previously rely on full priced sales, and to maintain momentum up until Christmas, promotional discounts will need to continue throughout December. With the weak pound affecting consumer confidence, customers are also more likely to be seeking out bargains and shopping around for the most competitive prices.

Also, heavy traffic in stores – sometimes requiring crowd control measures – resulted in an increase in online shopping in 2015, putting pressure on websites (slow or crashing) and pressure on distribution centres across the country. In addition, the spike in sales produced by the ‘flash sale’ nature of Black Friday also resulted in a spike in returns adding to supply chain pressures with extra handling and fluctuating stock levels.

As Vicky Brock, CEO of retail technology firm, Clear Returns, explains “The result is businesses frequently face a period of time in which they are short of stock while it is out in the supply chain or being considered by customers. The challenge with Black Friday is where it sits in the year – that final weekend of November. Typically, the cycle of returns becoming available to sell again is 15 to 21 days, so that stock, if everything went well, would just about be re-available to the retailer to sell on 20 December – past peak Christmas trading.”

As Black Friday looks set to remain a prime shopping day, and spreads around the world – Souq.com in the Middle East runs its version ‘White Friday’ and Alibaba in China has the massive Singles Day – it seems unlikely that this trend will reverse any time soon. So how do retailers retain their most loyal and most profitable customers and avoid a deluge of costly, margin-shredding, returns at their most important trading time? Retailers can reduce the impact if they think carefully about the products they are promoting – returns are higher risk in certain categories and sub-categories than in others. They should also consider that products are likely to go out of stock as a consequence, and, considering customer time to return and the retailers processing time for returns, unlikely to become available for sale in time for the Christmas peak. Future sales to customers who would keep these purchases are then lost and the returned stock ends up in the post-Christmas sale, with a low margin and all the added operational costs – including premium Christmas delivery and expensive warehousing.

Clear Returns award-winning predictive data technology focuses marketing on the customers who will keep their purchases. Keep optimisation is a solution that eliminates marketing driven returns by encouraging costly customers, who sit on premium stock, away from these purchases towards products they will keep and releases the stock for profitable customers thereby preventing returns, reducing costs and increasing margins.