Black Friday: Bright, shiny object edition

This Friday, as we emerge from our tryptophan induced haze, many of us will head to the mall seeking “door busters” and all manner of supposed fantastic bargains. Others will stay home to be met by breathless live shots from these same malls as reporters provide color commentary on this annual frenzy of conspicuous consumption. Industry pundits will pontificate as they are wont to do. Joy will spread throughout the land.

No matter that most Black Friday deals aren’t, in fact, deals.

No matter that the growth in internet shopping–and increasingly earlier launches of holiday promotions–continue to shift sales away from Black Friday.

No matter that, as Seth Godin nails in his recent post, Black Friday is more media trap, than consumer bonanza.

No matter that compelling evidence shows that Black Friday performance is largely irrelevant to predicting seasonal success.

For some consumers, a very limited budget–or a desire for certain highly scarce items–make aspects of the Black Friday slog worthwhile. Others simply go for the experience and aren’t kidding themselves that the savings justify the hassle and time investment.

But the sad reality is that many consumers who will hit the stores in a couple of days are simply misinformed. They have fallen prey to the mythology we continue to spin.

Given the dynamics of the retail industry and the media, I have no illusions that any of this will end any time soon. But none of us have to live in the denial of reality if we so choose.

Choose wisely.

And Hype-y Holidays!

 

 

 

Black Friday, Cyber Monday and the din of irrelevant analysis

During the past week–unless you were blissfully disconnected from all sources of media–you were likely inundated with news articles, tweets, posts and endless TV stories about Americans as weapons of massive consumption.

Reporters and pundits alike pontificated about the significance of earlier and earlier store openings, the relentless quest for the best “door busters”, the incredible growth of on-line shopping and the startling (to some at least) emergence of mobile apps.

Casting aside the glaring irony that after spending a few hours (allegedly) being grateful for all that we have, we quickly pivot and decide that, after further review, we don’t have nearly enough, much of what the media shares about the significance of our shopping habits during the past week is highly misleading.

Consider a few facts. First, historically there has been poor correlation between retailers’ performance during the Thanksgiving weekend and their overall performance for the quarter. In fact, there is growing evidence that there is an inverse correlation. Second, for most brands, Black Friday and Cyber Monday represent a small percentage of total sales for the holidays. Third, with Thanksgiving coming early this year, holiday sales are going to be more back-loaded than usual. Fourth, as more brands launch promotions prior to Black Friday, consumers spread their sales over more days, making any single event less important. Fifth, sales aren’t profits. Giving product away, and driving an abnormal amount of business to one or two days, wreaks havoc on profitability.

For those of you who breathlessly conclude that a given retailer “won” because of big increases on a given day or that Cyber Monday was a huge success because of a double-digit sales gain please realize the jury is still out.

A quick anecdote: when I was at Neiman Marcus we kept sweetening the deal on our thrice yearly InCircle Rewards promotion. Every time we added a new element our comp stores sales went up nicely, and it appeared that the incremental cost of the promotion was more than covered by the extra gross margin dollars we gained during the multi-day event.

Then a member of my analytics team wondered if anyone had looked at the possibility that as we made the deal better and better perhaps we were driving sales that would have occurred anyway (at a higher margin) into those sales days. Great question. So we did the analysis.

Lo and behold a comparative analysis that included a week before and after the event showed clearly that there was no appreciable increase in total sales. There was a change however. Our profits got worse.

The lesson is clear and compelling. Concluding that a sales event was a success without a more complete picture of how consumer behavior was changed over a longer period of time AND without including a profitability analysis is irrelevant.

I can hope that the media will pull back on disseminating useless information or that they will at least provide more helpful context. Not very likely, I know.

But there is one thing I can do. I can pay less attention.

And so can you.

 

 

 

 

 

 

 

Do you suffer from pre-mature celebration?

This weekend brought us many stories of a booming “Black Friday “and suggestions that surprisingly strong sales over the weekend may mean a great holiday season for retailers. Today’s “Cyber Monday” will very likely produce a solid double-digit gain over last year, further supporting the narrative that the consumer is back.

I hope this is true. I really do. But I’m skeptical.

First, as I pointed out in my last post, historically there is no correlation between retailers’ performance in late November and their performance for the whole holiday season.

Second, in challenging economic times–which, last time I checked we are still in–many consumers become more deal conscious. This “surgical shopping” behavior causes them to cluster their spending only when they perceive the best deals are available. When the great deals stop, they pull their spending way back. If retail spending over the next week or so remains strong, that means something. If spending moderates, as I expect it will, we are just witnessing shifts in spending.

Third, even if the industry manages to generate sales above the expected ~ 3% growth overall and a ~ 15% rise in e-commerce, the question will still be whether this is profitless prosperity. Done well, “door busters” and other aggressive promotions can be important drivers of traffic that lead to selling higher margin items. Or, without a winning value proposition and a compelling customer strategy, they can be a recipe for destroying profit margins.

Bottom line, I believe we are witnessing pre-mature celebration. Only a longer view will tell us whether the customer is really back and whether a meaningful improvement in profits will be realized.

 

 

Hype-y Holidays: The Mythology of Black Friday and Cyber Monday

The media hype around “Black Friday” and “Cyber Monday” is already at a fevered pitch–and the din will only grow louder over the next few days. But can we get real for a moment?

To be sure, these are very large volume days. Black Friday sales will likely push $20 billion, and Cyber-Monday revenues are virtually (ha!) certain to be record-setting. But consider a few facts for a moment.

First, studies have shown that retailers’ performance on these two days has little or no correlation to their total holiday performance.

Second, the relative contribution of these two days to total holiday spending is small (for e-commerce players only about 4% of total holiday season sales are done on Cyber Monday). And given intense promotional activity, gross margins are skimpy at best, meaning the relative contribution to profits is even smaller.

Third, with quite a few brick and mortar retailers opening on Thanksgiving–and many online sites advancing “door buster” promotions to today and tomorrow–sales will get spread out a bit more than last year’s spending pattern.

Lastly, a lot can and will happen between Cyber Monday and Christmas.  A look at last year’s data from comScore strongly suggests that there are many large shopping days ahead.

 Top 10 Online Spending Days of 2010 Holiday Season
Date Spending $MM)
Monday, Nov. 29 (Cyber Monday) $1,028
Monday, Dec. 13 (Green Monday) $954
Monday, Dec. 6 $943
Friday, Dec. 17 (Free Shipping Day) $942
Thursday, Dec. 16 $930
Tuesday, Dec. 14 $913
Tuesday, Nov. 30 $911
Wednesday, Dec. 8 $901
Thursday, Dec. 9 $898
Tuesday, Dec. 7 $880

Stated simply and Yoda-like, two days do not a successful holiday season make.

Retail’s holiday “game of chicken”

By most accounts the holiday shopping season got off to a solid start with strong late November sales and a record Cyber Monday.  Though given the historically high level of discounting and rampant free shipping it was likely “profitless prosperity.” But why worry about little details such as actually making money.

So now, with only 18 days of shopping left before Christmas, the real fun begins. And so does the game of chicken between consumers and retailers.

Despite feeling a bit more optimistic, all but the wealthiest consumers are facing a pretty uninspiring economic outlook.  And study after study shows that consumers are still engaged primarily in “surgical shopping”–emphasizing needs over wants and remaining keenly focused on getting a great deal. Retailers, by turn, are hoping to not only drive strong same store sales, but improve their gross margin performance. And here we have our stand-off.

The reality for most consumers is that they are unwilling to pull the trigger unless they see obvious value.  The reality for retailers is they are unlikely to cede market share or risk getting stuck with large markdowns.

So let the game of chicken begin.  My bet is that the retailers blink first.

 

Holiday shopping comes early…and late…and why you shouldn’t care about Black Friday anyway

Stand by.  Here comes the onslaught of stories about Black Friday and all the related hype about the retail industry’s biggest and most important sales day!  Yawn.

In reality, this Friday isn’t the industry’s biggest sales day–the Saturday before Christmas usually is–and the importance of Black Friday as a bell weather for the holiday season is waning.  Here’s why.

First, consumers’ capacity to spend remains muted.  Retailers get this, and realize that to drive the top line they need to grab market share. This is why so many retailers jumped the gun and launched “Black Friday” promotions well before Thanksgiving.  This will pull volume forward, away from Black Friday.

Second, consumers remain “surgical” in their shopping. That is, they are primarily focused on “needs” vs. “wants” and constantly on the hunt for a great deal.   Many shoppers understand that retailers get more desperate as the season progresses and they are willing to wait out the retailer for the best price.  This “game of chicken” will move sales off of Black Friday and into the latter part of December.

Third, gift cards continue to grow in popularity.  You sell the gift card before the holidays, but the bulk of the shopping comes in January.

Lastly, and perhaps most importantly, this will be a very digital holiday.  E-commerce will grow at least 10% year over year, while many brick and mortar stores will be lucky to show even a nominal increase.   Mobile commerce will go from being a rounding error, to being a small but powerful part of the whole story.   Many retailers, including a little outfit out of Arkansas called Wal-Mart, are already offering free shipping.  And no doubt, free or low-cost expedited shipping offers will be prevalent until the final days before Christmas. Simply stated, as digital grows, the importance of Black Friday diminishes.

So this Friday the pundits will pontificate and prognosticate.  And we will enjoy endless stand-ups from outside various Best Buys and inside various malls.  It makes for good television, but not good analysis.