With Thanksgiving turkeys being carved up across the US, Black Friday and Cyber Monday are just around the corner. This weekend of madness could be key for brick-and-mortar retailers, as it looks like legions of consumers are planning on heading to stores to pick up a bargain.
Every year, there are scenes of chaos as shoppers duel each other over discounted TVs, videogames and Yankee Candles. While chaos among consumers is, sadly, almost a given on Black Friday, this time around, it is supply chain chaos which could dictate the fates of retailers.
Let’s examine this year’s Black Friday prospects and what obstacles retailers face ahead of this carnival of commerce.
Will Black Friday 2021 be the biggest yet?
Data from Adobe Analytics shows that Black Friday 2020’s online sales were topped by Cyber Monday, which has emerged as a day when online retailers shower customers with deals. Cyber Monday’s online sales came in at $10.8bn, compared to the Friday’s figure of around $9bn.
More figures from Adobe Analytics show that online sales across November and December 2020 came in at around $188.2bn, far higher than the year before when sales reached $142.4bn. This was with a 42% reduction in-store traffic, with many shoppers electing to stay at home and hunt for deals online.
However, the share of these sales that stemmed from Black Friday and Cyber Monday fell from 20% to 18%, indicating that the allure of the weekend of discounts is perhaps waning.
Of course, last year was a bit of an anomaly. The pandemic was in a far more serious stage, and store closures were a much more limiting factor. If early indications are anything to go by, shoppers could be returning to stores in their droves.
Research published by Statista on Tuesday showed that 32% of people surveyed said they would definitely go into stores for the Black Friday sales, compared with just 16% in 2020. Additionally, just 21% of respondents said they would definitely not go, way down from the 35% of people who said that last year.
Online shopping is still expected to make up the bulk of activity. In 2019, when stores were not closed for the pandemic, Black Friday brought 84.2 million shoppers into stores, but this was outnumbered by the 93.2 million people who shopped online on the same day.
Even so, it looks like brick-and-mortar stores will also have an action-packed day of trading.
Is Black Friday profitable for retailers?
Although Black Friday and Cyber Monday are still the busiest days for sales, many retailers are extending their deals beyond these dates. For example, Best Buy (NYSE: BBY), Target (NYSE: TGT) and Walmart (NYSE: WMT) have all made at least some of their discounts available early this year.
These discounts, often of 50% or more, are unlikely to actually be profitable for retailers. Instead, they are used to either shift unwanted inventory or to entice shoppers into stores or onto websites, where they are more likely to purchase other products or services which yield higher margins.
These extra purchases might be related to the discounted goods, such as accessories, subscription services or warranties.
This concept is called loss leader marketing.
The question of whether this actually creates much of a profit for retailers is difficult.
However, let’s take an online retail giant as an example of how massive discounts can make a profit from these events. Amazon (NASDAQ: AMZN) clearly sees the benefit. The online retail giant has even adopted its own similar event, dubbed Prime Day.
Though these events see major price discounts, there is a catch: the sales are only available to Amazon Prime members. So, Amazon might take a hit on the actual sales, but will hope to ensure customer loyalty and repeat sales through its subscription service.
While its discounts might not be subject to the same limitations over the coming weekend, the company will, of course, attempt to lure customers into becoming paid-up members.
What obstacles do retailers face on Black Friday?
This year is a big test for brick-and-mortar retailers. The likes of Best Buy, Target and Walmart will be hoping foot traffic picks up over the weekend. The last couple of years have forced many latecomers to get to grips with online shopping, but there is still money to be made in-store.
However, one key factor in their success over the busiest weekend in retail, as well as on through the festive season, will be businesses’ handling of supply chain issues.
Just this week, Best Buy released further details about its own supply concerns ahead of the festive season, though sought to downplay any effect on its sales performance.
These same supply chain issues have hit Gap (NYSE: GPS), according to earnings released this week, sending the fashion retailer’s share price down by over 20%.
Some retailers are putting together contingency plans. Macy’s (NYSE: M) has outlined plans to hire 71,000 seasonal workers in order to help tackle its own supply problems, while Kohl’s (NYSE: KSS) is offering bonuses to employees who work through the holidays.
As we’ve already examined, much of the profit in events like Black Friday is through securing customer loyalty and repeat business. In a world where consumers are increasingly accustomed to having purchases delivered to them in one or two days, the pressure is on for traditional retailers to show that they can compete with this level of convenience.
If supply chain issues create long waits for customers, it’s easy to see them taking their business elsewhere. As such, investors with an eye on the retail sector would be wise to watch out for hints of supply problems this holiday season.
