Every year we suffer through the so-called “Black Friday”, the day immediately after Thanksgiving that’s supposed to kick off the Christmas shopping season and is also traditionally the single biggest shopping day of the year. This means it’s a very important day for retailers, of course, but if you dig into the numbers, Black Friday is one of the worst days for retail establishments, not one of the best.
Let me explain…
According to the Chicago Sun-Times, average modern retailers have about a 5% margin on products, be they a pair of sneakers or a flat-screen television. The same story explains that typical Black Friday discounts are now 40-50%.
I understand the logic, that one or two extraordinary deals will bring people into the store and they’ll also buy non-discounted or lesser discounted products, thereby making up the difference in profit. But what if that no longer holds true?
Read the papers, you’ll see that across the United States people who went shopping at all on Black Friday were very careful about their purchases and were much more likely to go into a store and buy the one or two super-specials than a basketful of goods.
The result? Instead of getting a nice boost on profits and a good jump-start on Christmas / holiday shopping, the entire experience was more likely a complete bust for retailers, losing them, rather than earning them money.
While some analysts will doubtless peg this to the 2008 recession, I suggest instead that it’s the inevitable result of the increasing commoditization of our world, the reduction of everything to its cheapest possible manifestation.
This is what Linda Sanford and I wrote about in our book Let Go To Grow [aff], and it’s fascinating to see how it’s become a more visible retail phenomenon in the years since we wrapped up the manuscript.
Every time we shop at Wal-Mart or Target to get our product a buck or two cheaper, every time we pop online to save on sales tax, every time we research products to identify the lowest-cost outlet, we’re all contributing to the problem.
With a retail economy built on the need for a substantial profit to cover overhead and costs, pay city and county taxes, health care for employees, and offset theft and so on, this trend towards an ever-more-commoditized world is a scary one. If followed to its logical extreme, we won’t have any retail stores at all or we’ll have to impose online store tariffs that offset the dramatically lower overhead of online drop-ship companies. What choice will we have?
Meanwhile, we’ll have to see. I predict that retailers will report that gross revenue from Black Friday sales were okay, but that profit from these sales was down significantly from prior years. And next year, even if the economy is in better shape, won’t jump back.