Black Friday still demands attention, and for good reason

bf November 19, 2016

By John Ewoldt Star Tribune

Let the debate for the best Black Friday doorbusters begin. Is it the Apple Watch Series 1 for $198 at Target, a PlayStation 4 Slim bundle for $249 (with $30 gift card) at Wal-Mart, Charter Club cashmere sweaters for $39 at Macy’s or the 55-inch 4K ULED TV for $499 (with $150 gift card) at Kohl’s?

They’re all good doorbusters. So good, in fact, that some may wonder if the consumer or the retailer is the day’s big winner.

As retailers get more aggressive in trying to grab shoppers’ time, they are driving down the profit ­margin on the deals of the day to next to nothing in some cases. Yet the stores stick with the strategy because Black Friday has become so important to the holiday shopping game plan.

The National Retail Federation says 68 percent of stores reported the Friday after Thanksgiving as their biggest sales day of the holiday season last year.

“Retailers make a minimal amount on a lot of Black Friday items but they make it up in volume,” said Marshal Cohen, chief industry analyst at NPD Group. Selling thousands of pieces of jewelry at 70 percent off still adds up to serious silver.

And retailers want a big start to the season in a year with a fairly upbeat forecast. The Retail Federation predicts the holidays will yield 3.6 percent more sales than last year, to top $655 billion. Standard & Poor’s is a bit more conservative but still predicts an increase of 2.1 to 2.5 percent.

The focus on so-called loss leaders — items sold at a loss to attract shoppers — started during the recession nearly a decade ago, Cohen said.

“It blew up into a way of life,” he said. He believes that a handful of items may be true loss leaders, the $4.99 toaster for example, but retailers can easily make money in myriad other ways.

The true loss leaders come when retailers limit the number of HDTVs, video game consoles or appliances to only a handful at each store. Last year, Sears offered a Kenmore Elite washer and dryer at 51 percent off, but only four were available per store.

Some retailers were running out of advertised TVs within 20 to 40 minutes. Wal-Mart ran out of several advertised vacuums within a few hours in 2015.

“You have people freezing in line, creating a frenzy and then no rain checks are given,” said Burt Flickinger of Strategic Resource Group. “Some people will eventually wave the proverbial white flag and stay home.”

Fortunately for retailers, the hard-core warriors who wait in line for hours before stores open are far outnumbered by more casual shoppers. While the bargain hunters flit from store to store, cherry picking only the best deals, the majority of shoppers pick up a lot of other items that may be full price or a typical sale price.

“The modern consumer is calculating gas and time in addition to a sale price,” said Paco Underhill, author of “Why We Buy.”

Two types of Black Friday shoppers take shifts on the day after Thanksgiving. The serious shoppers have started to haul their discounted treasures home by 2:30 p.m. Then the casual shoppers saunter in at a much less-frenzied pace, looking for appropriate gifts that may not even be on sale. The second shift packs in more profit for the retailer after the slim margins of the cherry pickers.

The National Retail Federation survey found 43 percent of customers make final buying decisions at the stores, not beforehand.

Even some of the lowest prices aren’t necessarily a losing proposition for retailers, including the doorbuster no major retailer can forget — the big screen TV. The retailer often gets an extra discount from the ­manufacturer.

“Just like retailers try to drive volume, so do the brands,” Cohen said. “That’s why you often see some of the same doorbusters from the same manufacturers year after year.”

A Razor Scooter has been included in every Target circular since 2008, according to Bradsdeals.com. Wal-Mart has featured the same items from Pyrex, Toshiba and Brother the past two years.

Retailers likely don’t have to worry about consumers tiring of the same deals yet, Underhill said, but there are other examples of fatigue. The fine print in ads indicating limited quantities per store or a mail-in rebate requirement or a sale price that’s only good for a couple of hours is sending more shoppers to the internet.

Some retailers are making things easier. Best Buy and GameStop now give out tickets to people in line to make the process more civilized. In some cases, people may be able to go home and return later instead of standing outside.

Retailers have a lot to lose by people staying home on what has traditionally been called the busiest shopping day of the year. For example, Target and Best Buy are both predicting comparable sales in a range of minus- 1 to 1 percent different from last year’s holiday season. So Black Friday then becomes even more important.

“Black Friday is one of the most profitable days for retail,” said Flickinger. “It’s in the top five.”

How long Black Friday will remain king is up for debate.

“The advent of the internet and progressively early promotions by other retailers has diminished its importance,” said Dave Brennan, co-director of the University of St. Thomas Institute for Retailing ­Excellence. “I think Black Friday is vaporizing.”

Last year, receipts from Black Friday weekend missed expectations. Part of the reason for the Thanksgiving weekend decline is due to Black Friday creeping into early November and beyond.

Consumers are beginning to see ads mentioning Black Friday as early as July.

“Black Friday is the new catch phrase for a great deal,” Cohen said. “It doesn’t matter whether it’s an automobile, a mattress or a travel package. It makes you feel like you’re getting a great deal.”