Black Friday — the first official shopping day of the holiday season — has historically been the most important shopping day of the year for retailers. But with the emergence of Cyber Monday, and the loss of pricing pressure that has resulted, particularly since the Great Recession of 2008-2009, is Black Friday no longer relevant to retailers or to the economy and financial markets?
Black Friday, so-called because in the past the Friday following Thanksgiving was the day each year when retailers went from being in the red (losing money) to being in the black (making a profit for the year), is the day we typically associate with tremendous bargains. Indeed, retailers spend millions of dollars each year advertising special offers for Black Friday, and this year was no different.
One can still find lines outside many retailers, starting Thanksgiving night, as shoppers queue up to get the first shot at great prices on select items. However, many shoppers have learned, since the Great Recession, that retailers have continued to offer great deals throughout the holiday season (and even into the new year).
With the growing prominence of Internet retailers, and the draw of Cyber Monday — the Black Friday for online retailers — shoppers now have a viable alternative to standing in long lines and fighting for the limited number of items available at traditional brick-and-mortar retailers.
Adding to the challenges for traditional retailers, consumers have been reluctant to spend, even as unemployment has fallen to just below 6 percent from above 10 percent. One explanation for this is the ongoing weakness in wage growth experienced throughout the long recovery from the economic trough in early to mid-2009. Regardless of the reason(s), consumers just have not been willing to get out and spend.
Retail spending over the Thanksgiving weekend fell 11 percent, according to theNational Retail Federation. This is the second year in a row that we have experienced a decline in retail sales over the Thanksgiving holiday weekend. This data adds support to the notion that Cyber Monday and persistent discounting in past holiday seasons have served to dramatically reduce the effectiveness of Black Friday sales.
Total spending from Thursday through Sunday fell to $50.9 billion, and consumers spent an average $380.95, down 6.4 percent (from $407.02 last year), according to the NRF.
There are a number of contributing factors that could help explain the weakness in sales results, in addition to those provided above. Many retailers have been offering sales prices earlier than Black Friday for the past few years, as well as leaving sales pricing in place well beyond Black Friday. The result has been that consumers do not feel the need to get out and spend on Black Friday, since they know they can get similar or the same deals on other shopping days.
The improving economy can actually has a negative impact on Black Friday sales, since consumers feel less need to find great deals (they can afford higher prices, so they don’t feel the need to brave the long lines just to get a good deal).
Cyber Monday has certainly stolen the thunder of Black Friday, particularly over the last few years. In fact, while Black Friday sales, even in years where growth has been relatively good, have only seen single-digit growth. In contrast, Cyber Monday sales has enjoyed health double-digit growth including last year’s record sales of $2.29 billion, which represented a 16 percent increase over the previous year. Still, even with another double-digit gain this year, Cyber Monday sales only represent a small fraction of traditional retail sales for Black Friday.
Reviewing the data and the current trends, it appears certain that Black Friday has lost its luster. It seems likely that Black Friday will fade into history. It has been many years since Black Friday represented the turning point from losses to profitability for retailers.
Today, we see that its significance as a key indicator for the tone of overall holiday sales, and by extension fourth-quarter earnings potential for retailers, and the overall economy, is fading fast.
Will Black Friday be lost to history? While I would not expect Black Friday to disappear completely in the next few years, ultimately it seems destined for the economic scrap heap.