Black Friday is just around the corner. And, like always, it's the time of year when every analyst I know (myself included) will pull their hair out of their heads because it seems like such a bad idea.
Think about it like this:
The holiday season is the time where people are willing to spend huge amounts of money no matter what. So, why are you...
- Giving people a discount when they are perfectly willing to pay full price?
- Giving people so big a discount that most Black Friday deals are a loss to you?
No, no, I get it. You are doing it because knowing that people are willing to spend this much money, you are hoping that your discounts will draw them to your stores instead of your competitors. And that getting people to your store will then entice them to buy other products from you at full price.
Except, we see no signs that this is what is happening.
Since everyone is doing Black Friday deals, everyone is also offering these discounts. It doesn't give you a competitive advantage (other than to see who can lose the most amount of money).
And the extra sales? Sure, it's there. But again, wouldn't it be there anyway? I mean, everyone is shopping for Christmas gifts anyway. It's not like people wouldn't buy Christmas gifts if there weren't on sale.
But, wait a minute, you say. Studies have shown that the volume of sales is up during Black Friday, and in an excessive way.
That's true. But again, isn't that just because people need to buy all these products anyway? And besides, if you give people a 50% discount (or worse, a 75% discount), your volume might go up, but your overall revenue stays the same. And since more volume also means higher cost, doesn't this just mean you are losing money?
Depending on who you ask, you get ten different answers to this question.
Then there is the impact that this has on overall sales. Will these huge discounts discourage people to buy what they need in the months before and after Black Friday. Well, surprisingly, no. But not for the reason you might think.
Let me show you something fascinating.
Here is a graph of the total retail sales (except car dealers) in the US.
Notice something interesting here? Yep, people have become less seasonal minded over the past 30+ years.
In 1992, 20.2% of the annual retail sales happened in November and December, with December taking the largest share. Since then, November (the month of Black Friday) hasn't really changed at all (it has actually declined), but look at December. In 1992, it commanded 11.4% of the retail sales. Now it's down to only 10%.
What this means is that people are choosing to spend more of their retail budgets over the rest of the year (particularly in the spring months). The increasing popularity of Black Friday doesn't seem that useful at all.
But, maybe this is not the right way to look at it. Total retail sales is everything from paint and wallpapers, to office supplies, groceries, furniture, fashion and electronics. Maybe we need to look at only the types of products that are popular around this time of year.
So let's do that.
The absolute winner in this category is 'hobby, toys and games'. This category is so seasonally distorted that a staggering 40% of all sales happened in November and December in 1992, and of that, 30% were just in December.
This, of course, isn't really surprising considering that every small child is going to get a ton of toys from parents, grandparents and other relatives ...sorry, I mean from Santa Claus :)
So how does that look today now that we have Black Friday deals in every toy store? Well, like this:
First of all, this is absolutely scary. For most of the year, nothing happens and then it's Christmas. But again, look at the share of sale in 2014?
In 1992, 40% of the sales happened in November and December, but, by 2014, that number dropped to 32.5%. This very clearly illustrates that people are less seasonally defined today.
And again, I do not see any real indication that Black Friday is somehow a magic time for sales. As far as I can tell, it would have happened anyway, and thus toy shops are mostly just losing profit.
Another very seasonal industry is the jewelry market. And its graph looks like this:
It's almost as bad as the toy market, although I do find it rather interesting how it fluctuates in the spring. It seems spring really is the season of love.
But again, the share of revenue of the annual sale in November and December is down. People are spending more money outside of the holiday season in 2014.
Another category we can look at is fashion:
It's the same picture.
Remember, in order for Black Friday to be this amazing sales success that some claim, we would have to see a noticeable shift towards November. But, it's like that's not even happening. If anything, the only month affected is December. This means that people are simply buying the products at a discount in November that they would have bought in December anyway.
But, this is silly, you say. We all know that the real impact of Black Friday is with electronics. Like when people are buying smartphones, tablets, computers, cameras, TV, gaming consoles and other things like that.
Okay, so let's look at that:
What you see here is that there is almost no difference overall between 1992 and 2014. People generally buy electronics all year. However, look at October, November and December for 2014.
Here we do see the Black Friday effect. Sales in October are down from 8.5% of the total in 1992, to 8.1% in 2014. November has increased slightly, and December has dropped.
But is this because people are spending more in November, or are the sales just shifted from one month to another? One way we can look at that is to compare the increase in revenue per month, between 1992 and 2014. If Black Friday worked, we would see a higher increase in spending in November than for the rest of the year.
So, here is that graph.
People are, in 2014, spending 1.54x as much on TV, phones, computer and gaming consoles etc. than what they spent in 1992. This, of course, shouldn't come as a surprise to anyone. I'm actually surprised that the number isn't any higher.
And yes, November is one of the months that have increased the most. But, it hasn't increased that much higher than, say, August. In fact, March and November have experienced the same increase in sales.
It doesn't really look that good for this whole Black Friday craziness. To me it looks like this whole phenomenon is just a loss.
Mind you, I'm not suggesting you shouldn't do Black Friday deals. We kind of have to because everyone is doing it. If you don't do it, then people will just go to your competitors instead.
But I would be very particular about which products I offered. I wouldn't think of Black Friday as a day of sales. Because without profit, it isn't. I would see it as a day of marketing. Which means that I would focus on deals that guaranteed that people would come back later for more.
It's basically just a loss when a store sells XBOX Ones with a huge discount, unless they also plan to sell tons of games and accessories to the same person later