Black Friday: A Christmas present for retailers, or a gift for life?

23 November 2018

Black Friday: A Christmas present for retailers, or a gift for life?

Is it a passing fad?

Retailers have for a long time used events and festivals to drum up trade during quiet periods. For example, elevating Valentine’s Day as an event worth celebrating with gifts, to lure buyers out of their winter shopping hibernation, and January Sales to help clear surplus stock. But what can retailers hope to gain strategically from celebrating Black Friday?

Strategic gains

For many UK retailers, the Christmas quarter is when most profits are made. As shops are already busy, there is, at first sight, little strategic reason to have Black Friday as a means of livening up a quiet period; nor is it needed to clear seasonal stock. So why have Black Friday?

Retailers use the shopping event to bring forward customers’ purchases to get a share of their wallets before competitors get it. When money is gone, it may be gone for good, so retailers who ignore the opportunity might find customers have little money left to spend in the run up to Christmas.

For retailers as a whole, Black Friday can be a zero-sum game – they simply bring forward sales during the pre-Christmas period and shops instead seem eerily quiet just before Christmas. In years of high consumer confidence and easy credit, it is possible that Black Friday could induce additional expenditure, but with falling confidence and tight credit it is more likely to be a zero-sum game - retailers bringing in the sales earlier win out over those who wait for the pre-Christmas rush.

High street vs online

According to research by Springboard, Black Friday 2017 UK online sales rose 11.7% over the previous year, but high street footfall fell by 3.6%. However, Black Friday also poses dangers for online retailers as websites and logistics can crash as people from all over the country click on a bargain.

There is also an argument that Black Friday could help the high street by encouraging customers to explore for bargains. Indeed, many retailers’ strategy is now to build surprise into high street shopping experiences to encourage footfall.

Is Black Friday here to stay?

A large retailer that competes on price would be brave to ignore Black Friday but some retailers have recently scaled back activities, and some never got involved in the first place. For example, Marks & Spencer and IKEA have held true to a consistent positioning based on quality and value, relying less on Black Friday style tactical pricing. Backing off may be a sign that a retailer has strategically built up sufficient customer loyalty that protects it from price cutting.

For those that lead the pack on Black Friday, their route to survival must be through high volumes and efficient, low cost operations; without this strategy, Black Friday can lead to trouble. BHS, Maplin and Toys R Us all promoted Black Friday events, but are now history – Black Friday was not a cause of their demise but a symptom of weak customer loyalty which left price cutting as a costly tactical tool.

Overall, it would seem that Black Friday is here to stay, but maybe not for all retailers.