Black Friday, a day now synonymous with huge discounts on the Friday following American Thanksgiving, was first coined as we know it in the 1950s/60s by the Philadelphia police force who dreaded the traffic jams and crowding caused by shoppers flooding local high streets and malls. Since, ‘Black Friday’ is more generically regarded as a surge in consumer spending, enticed by big discounts, enough to put retailers ‘in the black’ for the year.
Black Friday has not only become a global phenomenon but has come to span the entire weekend, ending with Cyber Monday. It is clear to see why retailers participate, as shoppers spent £2.5 billion on Black Friday alone last year. In the United Kingdom, spending was forecast to increase by 8% this year; however, the global pandemic and a UK lockdown resulted in Black Friday enthusiasm reducing by 16.7%. This is largely due to two-thirds of transactions historically originating from in-store sales.
The image etched into many minds from 2014 showing customers clawing and clambering over each other to grab a large screen TV during one of Asda’s Black Friday store campaigns was replaced by an almost silent High Street and a surge in online expenditure. However, despite lost revenue from in-store shopping, online sales hit record highs.
Black Friday Online: Issues of Profitability
With the pressure to convert the spike in consumer demand that Black Friday brings into actual revenue, retailers had to focus on driving e-commerce with further incentivisation for online spending. This year’s Black Friday saw many retailers offering more generous discounts spread throughout November, enabling shoppers to take advantage of prolonged bargains. John Lewis ran its Black Friday sale from November 20th to 30th, where they reached “new record demand” with 3.5m products shipped during the sale. Cult Beauty’s chief executive and co-founder Alexia Inge says its promotions were “extremely well-received this year,” with units sold 38% higher than Cult Beauty’s previous record.
However, the shift in channels from store to online brings with it challenges on profitability. Online fulfilment is typically more expensive than store fulfilment, meaning every customer who simply switches channels erodes retailer profits. This begs the question of the true benefit that the consumer is getting in Black Friday deals. If online is eroding retailers’ profits, can they really be offering record discounts?
In 2019 Which? found that 98% of discounts investigated were available for the same price or cheaper in the six months after the sales, whilst 85% of product was the same price or cheaper in the six months before Black Friday. Consumers should be wary of the ‘was’ price and check items in your basket across multiple sites. At John Lewis, a De’Longhi coffee machine was offered at £399 on Black Friday 2019, but it was then discounted to £368 on at least 35 occasions in the following six months.
The increasing trend to offer discounts throughout November, as opposed to just a day or a weekend, softens the supply chain implications caused by Black Friday demand peaks. Reducing the pressure on supply chains limits the number of temporary staff hires retailers need to make to service the spike in orders. Due to the limitations of store closures, many retailers offered free home delivery and Click & Collect this year during Black Friday in a bid to retain historic sales volumes. The result eats away at profit margins for companies, whilst also placing pressure on carriers who reached unprecedented demand for home delivery.
The Future of Black Friday
Whilst the pressure to offer free and fast delivery is eating into margins, any retailer that believes they can simply ride out the coronavirus storm and recoup their losses once sales revert to stores should think again. Although experts agree that online sales are unlikely to remain at the levels seen during lockdown, the latest Office for National Statistics data for August shows them falling back to 28.1% of total retail sales. Most also believe that they will never return to pre-Covid levels. In this context, the ability for businesses to trade profitably will be fundamental to their future viability. Retailer Next claimed two years ago that if all the sales lost in retail were transferred to sales of Next’s UK online business, it would lose 7p for every pound transferred, totaling a cost of around £8m.
To recoup some profits eroded by online fulfillment, retailers must either move away from mass discounting and free delivery, by leaning into the growing trend of the conscious consumer and ‘Green Friday,’ or capitalise on data.
China’s version of Black Friday, named ‘Singles Day,’ demonstrates how retailers and e-commerce giants exchange big discounts in exchange for increased data and visibility on their customer. Chinese companies are using gamification to entice customers to engage further with their brand, Alibaba distributed 2 billion Yuan (£230m million) through virtual games to shoppers this year. The games encourage users to give personal data and connect with friends and family to unlock discounts. What is more is the retailers track the whole purchase journey of the consumer through the game. The event has quickly become the world’s biggest 24-hour shopping event, with 1.9bn products delivered last year.
Green Friday, the antithesis to Black Friday, has been a growing movement over the past few years. The day, and offers, take place over the same period as Black Friday. Green Friday taps into the rise of the ‘conscious consumer’ focusing on encouraging socially and environmentally responsible spending, moving away from the mass discounting that typically leads to careless spending, eroding profit margins, and increase in carbon emissions. A growing number of companies are partaking in Green Friday. For example, Baukjen donated 100% of profits from sales on Black Friday to charity Centrepoint, which focuses on youth homelessness, an issue worsened during the pandemic. Jewelry brand Missoma partnered with the charity TreeSisters, committing to plant over 100,000 trees from sales over Black Friday. Partnering with Woodland Trust, Sofology will plant 100 trees for every sofa booked into their Sofa Rescue Program and one tree for every order that was placed.
There is no doubt that the growth of Black Friday has both its merits and downfalls for retailers and consumers alike. As we navigate Black Friday under the ‘new normal’ in a Covid-19 world, the demand for online fulfillment has grown exponentially resulting in challenges for supply chains and profitability of retailers. The future of Black Friday will continue to evolve as retailers battle to meet online demand and please customers, all whilst making profit. Alternative Black Fridays that have come to fruition, Singles Day and Green Friday, are set to grow as they provide incentives and offerings that drive benefit for not only the customer but the retailer too.
So Black Friday will remain … just not as we know it
BearingPoint is a partner of ESCP’s Retailing 4.0 Chair, which aims to foster forward-looking in-depth reflection on the business and retail industry of tomorrow.
Thank you to BearingPoint Senior Business Analyst Alyssa Opzoomer for her contribution to this article.