Black Friday 2018: What Retailers Have to Consider

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Black Friday – the day after the US Thanksgiving holiday – has become a huge global retail phenomenon and like many aspects of American culture goes far beyond the borders of the US mainland.

In the UK alone in 2017 Black Friday saw an 11.7% increase in year on year online sales – bringing the amount spent to £1.4Bn.

As Black Friday and other consumer festivals become increasingly inevitable for retailers we’ve provided a few considerations for retailers and whether or not they should participate in the holiday.

Black November

Singles Day, the Chinese consumer festival held on 11th November (11/11 – represented by 4 single digits. Get it?) is the biggest annual consumer festival globally but is still largely contained to the Chinese markets. Expansion of Singles Day is being driven to non-Chinese countries by Chinese brands. Smartphone manufacturer Xiaomi launched in the UK on Singles Day by selling some of their smartphones for £1, for example.

Cyber Monday, the Monday after Black Friday, which emerged in e-commerce in 2005 has dimmed in its relevancy as e-commerce has grown throughout the world.

Along with month-long “Black Tag” events prevalent in several large retailers, it is becoming increasingly common for Black Friday to consume the entire month of November. In many respects, this is a positive for the consumer – Christmas is after all the largest purchasing event of the year and being able to get large discounts before Christmas (as opposed to traditional Boxing Day or January sales) means that consumers can get their Christmas gifts for less. However, research by PwC has shown that the average consumer goes into Black Friday with the intent to buy for themselves and not for others.

Online vs Offline

We’ve all seen the footage of Black Friday riots – where consumers queuing at 5am have fought one another for flatscreen televisions. The motivations behind this sort of stunt are hard to gauge – it certainly seems likely that someone who is in your shop at 5am is more likely to buy more than someone sitting at home waiting for the one item they want to be discounted on your website. If your shop is subject to a riot, it will likely receive news coverage but with an undoubtedly negative slant.

Some large retailers participate in both in-store only and online only offers. For smaller retailers, this seems impractical. If you are a small or medium sized retailer attempting to compete with the megabudgets of major online retailers on Black Friday, the question arises – is it worth it? The average consumer will receive dozens, if not hundreds of emails on Black Friday and be subject to endless advertising – whether on television or social media. Sitting Black Friday out may even be beneficial to your business.

If you are going to participate in Black Friday there are a couple of things to remember. If you run a physical store – more footfall means more staff are needed. If you sell online – remember that demand for couriers is higher.

What People Buy On Black Friday

What will you spend most on this Black Friday?

Research by PwC shows that consumers largely intend to use Black Friday for purchasing technology and while some Christmas related purchasing occurs, there is very much a personal slant to Black Friday consumption.

Should your company participate in Black Friday? This is the sort of question that needs to be answered with two questions: a) Do your consumers expect you to participate? and b) Do your main competitors participate?

No one is really expecting their lunch to be cheaper on Black Friday – some industries are simply expected not to participate. If you sell premium products and you discount products aggressively you could damage your brand among existing customers and expose your margins to competitors.

Can your company afford to discount?

This question affects retailers at all times of the year but is particularly pronounced during mass events like Black Friday. The reality of business is that the more you discount the more you need to sell. If your shop or e-commerce environment can attract new consumers for Black Friday discounts and either retain them or effectively upsell non-discount items then you can escape the need to sell more. In short, if you can achieve a positive lifetime value from new customers gained from Black Friday then it’s worth it – if not, it’s not.

Queues of impatient Black Friday consumers stomping through your shop on a cold November day can potentially damage the customer experience for everyone – including your regular customers.

If your margin is 30% on an item and you offer a 10% discount then, all other things considered equal, you will need to sell 50% more to achieve the same profit (formula source: Charles Kyd).

Here is a table for reference (available as a downloadable resource) that shows the impact of discounts on profits and the need for greater sales. Ultimately, it can be hard to navigate running a low margin business and the external pressure than consumer events like Black Friday add can be fatal.

rms-table

 

However, Black Friday can be an excellent excuse for retailers looking to shift stock.

Conclusions

Black Friday (which was once an American phenomenon) and Singles Day (which was once a Chinese phenomenon) have cemented November as the month of the discounts globally. It could be argued that the biggest American retailer (Amazon) and the biggest Chinese retailer (Alibaba) have orchestrated the growth of these events to put pressure on their smaller competitors. The reality is that these events are here to stay and retailers have a decision to make around competing in them.

Sales on Black Friday skew towards technology and towards purchases being made for the individual. If consumers aren’t expecting you to discount and your rivals aren’t discounting then participation in Black Friday may not be required.

The reality of retail lives in the margins and misjudged discounts that don’t achieve sufficient upsells or customer retention may seriously damage a company’s cashflow. While Black Friday is a real opportunity to grow your brand exposure remember that anyone who learns about your company through Black Friday will forever associate your brand with a discount.

The correct EPOS system can help you manage your discounts, understand your margins and give you oversight of your customers and your product range. RMS are EPOS specialists and our premier solution OpSuite can help retailers that scale. For a free demo, please get in touch.

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