Views of Black Friday

I like the name American retailers have for the traditional start of the holiday shopping season in America, which fell on November 27th this year. What’s black about Black Friday? It comes from the phrase ‘being in the black’ to mean having a bank balance of more than zero. None of us like ‘being in the red’, which people usually take to mean being overdrawn or in debt.

This is explained in Business Studies by breakeven analysis. Firms typically have huge fixed costs (or ‘overheads’) that run all year, even if the firm sells nothing. These are the costs that firms need to cover in order to ‘breakeven’.

The money to cover these fixed costs comes from contribution. This is the difference between the cost price of what they are selling (usually termed variable costs) and the selling price. A $4 toy sold for $9 makes a contribution of $5 towards overheads.

By rule of thumb, the back end of November is the point at which US retailers have made enough contribution to cover their annual overheads. That makes the Thanksgiving weekend the breakeven point, or Black Friday. From now on until the end of the year, contribution is pure profit. This makes the period up to Christmas a vital time for racking up high sales.

What themes are emerging for Black Friday 2009?

The Economist has a nice article with these main points:

Firstly, the recession appears to have accelerated the pace at which shoppers are abandoning bricks and mortar in favour of online retailers—e-tailers, in the jargon. E-commerce holds particular appeal in tough times as it enables people to compare prices across retailers quickly and easily. In 2008 retail sales grew by a feeble 1% in America and are expected to decline by more than 3% this year, according to the National Retail Federation, a trade body. In contrast, online sales grew by 13% in 2008 to over $141 billion and are predicted to grow by 11% in 2009, according to Forrester, a consultancy. Online sales now account for 6% of all retail sales in America (up from 5% in 2008) and that figure is expected to reach 8% by 2013. In Britain, internet shopping now accounts for nearly 4% of total retail sales.

Secondly, the range of items available online is also growing. Amazon has started selling groceries. Consumer-goods companies such as Procter & Gamble are encouraging the sale of things like nappies and laundry detergents online. The shift in spending to the internet is good news for companies like P&G or Unilever that lack retail outlets of their own. But it is a big concern for brick-and-mortar retailers, whose prices are often higher than those of e-tailers, since they must bear the extra expense of running stores.

Thirdly, there’s the concept of “multichannel” shopping, where people can buy the same items from the same retailer in several different ways—online, via their mobile phones and in shops—is gaining ground, and retailers are trying to encourage users of one channel to try another. Growing online traffic may actually increase sales in stores too. According to a spokesman for Macy’s, a department-store chain, every dollar a consumer spends online with Macy’s leads to $5.70 in spending at a Macy’s store within ten days, because consumers learn about other products online and come into stores to look them over before buying them.

Stores are also trying to lure customers by offering services that are not available online. Best Buy, a consumer-electronics retailer, has started selling music lessons along with its musical instruments. A business which sells sports clothes offers free yoga classes. The idea is to bring people back to its shops regularly, increasing the likelihood that they will develop the habit of shopping there.