The end of Black Friday: Why the seasonal price-slashing frenzy is too unprofitable to last

 
Stuart Higgins
To claim shoppers have had enough of Black Friday is not quite telling the whole story (Source: Getty)
Asda's decision to pull out of Black Friday may have hit the headlines last week, but the move was far from unprecedented. In the US, where this seasonal price-slashing frenzy originated, held on the Friday after Thanksgiving, retailers have also started to back off. The outdoor and sporting goods chain REI, which has more than $2bn in annual sales, is set to close all of its 140 stores on Black Friday, while tech retailer Newegg says it will spread any discounts over a fortnight. The question is why.
Asda’s chief executive Andy Clarke says the firm is responding to what customers want, but in terms of sheer volume, the event is only growing in popularity in the UK. The Office for National Statistics measured a 1.6 per cent rise in sales volumes during November 2014, equating to growth of 6.4 per cent on an annual basis, largely down to the Black Friday effect.
It is also growing online. According to IMRG and Experian, consumers spent £810m on Black Friday last year. This year we expect it to top £1bn.
Although Black Friday has witnessed some uncouth scenes to say the least, to claim shoppers have had enough is not quite telling the whole story.
The truth is many retailers are divided over Black Friday. Our new report on the subject, released today, finds that a third of major retailers think it is unsustainable and unprofitable. Heavy discounting combined with surging, unpredictable demand can make it difficult to maintain margins and meet customer expectations at the same time. Retailers that do not have the infrastructure and capabilities to give customers what their brands promise are running the risk of alienating them and harming long-term sales.
We did find, however, that those major retailers with an established omni-channel capability are poised to capitalise on Black Friday’s huge sales potential. Indeed, the event is amplifying challenges we are seeing across the retail sector. The consumer may want to browse in store, order online and pick up at the train station. They might return the item to the store and, when they do, pick up an alternative ordered via a mobile app. At each step they expect retailers to know who they are and what their recent interactions with the brand have been.
At the same time, consumers want more rapid deliveries. The industry is locked in an arms race with online-only retailers which is seeing next-day and even same day delivery become the norm.
It is hideously complex and eye-wateringly expensive for incumbent retailers to meet all of these expectations, and even more so when so many sales are concentrated on one day of frantic discounting. It is not just about building a flashy front-end sales system. It requires visibility of stock and accurate data from the store and the carrier, to the warehouse, distributor and supplier, all linked up with the online shop window. Some are asking IT systems, now a couple of generations old, to do things they were never designed to do.
Leading retailers who have built the back-end systems to fulfil the front-end promise will benefit from the huge sales volumes on Black Friday. They will decide what they can offer and deliver that – literally. But crucially, they will know what their costs are and how to keep the proposition profitable.
So enjoy the crush while you can. Black Friday won’t stay this way forever.

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