In Depth

Black Friday: why are retailers falling out of love with sales bonanza?

Profit margins can be hit as shoppers save up to splurge on day of discounts - and then return much of what they purchased

It landed on British shores two years ago and has brought complete carnage with it. As the nation gears up for Black Friday – 24 hours of massive discounts at the shops – this week, MPs and the police are advising retailers not to take part. What’s wrong with a sale?

What is Black Friday?

In America Black Friday follows Thanksgiving, which occurs on the last Thursday in November. It is the day when consumer attention turns to Christmas shopping and the try to lure them to their stores with massive discounts.

It arrived in Britain two years ago and has not been a pretty sight. Last year, “footage of a woman being dragged along the floor of a supermarket clutching hold of a TV was shared widely across news outlets,” says Katie Collins on CNET

The police had to deal with scenes of chaos and public disorder across the country as shoppers fought over stock. As a result police forces across the country have asked shops not to take part.

Are all shops involved?

No. Wal-mart owned Asda was one of the first UK chains to embrace Black Friday, but it has announced it won’t take part this year.

The store has recognised “that marauding bargain-hunters would probably scare off Asda regulars,” says Simon Neville in The Independent. The company has said it is pulling out of Black Friday in response to customer request for more long-running discounts on high-end products in the run up to Christmas.

Many other big retailers say they are going ahead with Black Friday sales, but industry experts believe shops won’t be embracing the discount day as fully as they have in the past. 

“Asda has decided to review its stance on Black Friday in public,” says Clive Black, a retail analyst at Shore Capital in The Independent. “We sense that many other retailers have more quietly followed suit.”

Why are retailers losing interest?

The problem is quite simple: profit. Statistics show that retailers lose more than they gain from Black Friday. They slash their prices to get customers through the door and compete with other shops, but in doing so they lose their margins and turn the day into a loss-maker.

“Heavy discounting combined with surging, unpredictable demand can make it difficult to maintain margins and meet customer expectations at the same time,” says Stuart Higgins in City AM.  “Retailers that do not have the infrastructute and capabilities to give customers what their brands promise and are running the risk of alienating them and harming long-term sales.”

An increasing problem is the number of people taking advantage of Black Friday online in order to avoid the scrum in stores.

“Retailers and delivery companies are reportedly hiring 11,000 extra drivers to cope with the demand,” says Roger Trapp in Forbes. “With retailers increasingly offering free deliveries and returns – the latter is likely to create another surge in activity because, as one analyst noted, the ease of returning goods means that many people choose items in two or three sizes and then send back those that do not fit – the recruitment adds to costs and so reduces profit.”

But, surely all the extra sales are good news?

Unfortunately, the evidence shows that Black Friday doesn’t even result in much of an overall uptick in sales for stores. People just do all their Christmas shopping in one day rather than spread over several weeks. In fact, there was already a slowdown reported for sales in October as people await the Black Friday splurge.

“Although it can show a spike in your sales, they are sales you were going to get anyway,” one senior industry insider told The Independent

Is this the end of Black Friday then?

Probably not. “it is impossible to put the genie back in the bottle,” says Andy Street, managing director of John Lewis.

But in the future we may see the discounts change and be extended over a longer period so as to ease pressure behind the scenes. In fact, again we've already seen some evidence of this with a number of UK retailers like Argos and homebase starting their 'Black Friday' sales a week earlier.

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