Published by on Wednesday, 25 Nov 2015
Mike Parkes, Partner Momentum Results LLP and Programme Director for Oxford Masters
Historically, as Christmas approaches, the perennial challenge for retailers has been can they hold their nerve on pricing and retain full margin, knowing with the onset of Boxing Day the rush to shop and secure bargains will provide another spring board for sales. This was epitomised by the Next sale with eager shoppers throwing off the excesses of the day before to form orderly queues at 6 am for those bargains.
Since the recession took hold, more and more retailers have moved into sale earlier and earlier, initially Christmas Eve and gradually as fears of declining sales patterns, a few days before Christmas supplemented by sporadic one day flash sales and for some as early as mid-December. However, since 2010, a new phenomenon has disrupted the market and the predictable growth in sales leading up to Christmas – Black Friday. In truth, there is nothing new about Black Friday; it has existed in the US since 1960’s, signifying the day after Thanksgiving as the traditional American day for shopping for bargains. It is the US version of Boxing Day and has no real significance or relevance to UK traditions; however with the increase in global trading we have all begun to see its impact in the last few years.
Black Friday first emerged in the UK in 2010 driven largely by Amazon, but became most prominent when Walmart subsidiary, Asda, grabbed hold of the concept in 2013 and particularly in 2014, when it really took off. In 2014, it became the biggest single shopping day in UK history with an estimated £810 million of sales. As a result the pressure on retailers to participate has become immense; it has become the classic game of “blink and you’re out” as retailers battle to hold margin but fear by non participation they will lose footfall in stores or transactions online and drive potential customers elsewhere, but going into sale so early merely eats into margins & profitability.
So is Black Friday good for retailing?
This may seem like an odd question. It’s certainly good for customers intent on a bargain and does boost sales, attract footfall and visits to online sites. It certainly increases transactions, aids cash flow and for some retailers it enables them to move dormant stock. Looking back at last year, John Lewis, House of Fraser, JD Sports and even HMV reported uplifts in Christmas trading prompted by Black Friday. However, Black Friday does place intense stresses and strains on businesses both in store and online but above all in fulfilment and distribution channels. Many creaked under the weight of transactions and some fell over as deliveries were significantly delayed and web sites crashed.
Despite the success for some retailers, Black Friday had a negative impact for others. In 2014 Asda, a leader into the market, experienced many widely reported problems with stampedes and disturbances as individuals literally battled for a deal. The original concept of Black Friday was providing “door busters”, bargains which attracted shoppers in the hope that there would be more impulse buys of full margin products. The intensity of the Asda experiences left shoppers heading for the doors once they had purchased their bargain, resulting in Asda failing to reap the return that their investment required. It seems that Asda are not participating this year!
Marks and Spencer also suffered during the 2014 Christmas period and this was largely attributed to an unsuccessful Black Friday which resulted in sales but poor fulfilment and delayed deliveries which dented consumer confidence in their ability to reach homes before Christmas. Another front runner, Argos, saw sales rise by 45% on Black Friday, largely supported by heavy discounting eating into their margins, however by January 3rd, their like for like sales for the period, were level. They had sold the same quantity as previous years, but at much lower margin. In effect wise shoppers had fulfilled their Christmas lists earlier but at significantly lower cost.
So do retailers just have to accept that discounting in November as a result of a phenomenon that has no real relevance to UK traditions has now become integral to future UK trading patterns?
Is it just a reflection of the global economy and we are all just a click away from purchasing anywhere in the world?
Or is this just a brief upheaval to traditional trading patterns with normal service resuming shortly with a steady build-up of sales and a crescendo just before Christmas itself?
Over the coming weeks, we will all have a clearer picture when retailers release their comparative trading figures for the period to January 2016. What is clear is that retailers are more prepared than ever before and in fact some have sought to lighten the intensity of one day’s trading by launching discounts for the whole week, so enabling fulfilment and distribution challenges to be eased. That said, this also serves to bring the sales period even further forward, with products being sold at lower margins for longer periods. This raises the question, will shoppers really return to buying products when they are back at full price, or have customers now become attuned to only shopping at a discount? Have retailers now programmed shoppers to wait for the sale, much as loyal GAP customers do in anticipation of the next GAP sale?
Interestingly, the “blink and you’re out” approach as not been embraced by all retailers. In 2014, Primark and Mothercare decided not to play the game, yet returned increases in sales and profitability. Primark had no special events or promotions but saw an increase in footfall and transactions as the high street prospered. Equally, Mothercare chose not to participate in online reductions recognising that the last weekend in November and the first week in December were the highest online trading weeks of the year. They held the belief that individuals would shop online then anyway, so why discount? Their belief proved accurate, the
y saw an increase in store footfall and online transactions without giving away margins.
So where does that leave retailers?
There are suggestions that this year will be more muted, than the hiatus of last year. Certainly retailers are more prepared, but are they selling products at a discount that they could have sold at full price? Only Xmas trading results will tell the full story.
Mike Parkes is the Programme Director for the Oxford Summer School Masters. If you want to know how to position your retail business, for both the current and future challenges, as well as discuss with and hear from leading retailers and experts in the field, join him from 29 February – 3rd March 2016 at the Oxford Masters, Saïd Business School, Egrove Park.