Ailing retailers struggle to escape the Black Friday trap

Black Friday
Taking part in Black Friday means extending opening hours and paying staff overtime to sell products at low margins
Black Friday has shifted online so high street retailers hoping for a sales fillip will be left disappointed

The Black Friday discount bonanza originated in the US on the day after Thanksgiving and migrated to the UK nine years ago when Amazon began offering promotions here.

Shoppers are expected to splash a whopping £4.3bn this year on gadgets, clothes and toys – but more than two-thirds of sales will be made online.

So where does that leave the ailing high street? All the evidence suggests that the annual Black Friday extravaganza has become a trap from which retailers cannot escape: unable to live with it, or without it, they are looking for ways to make it palatable.

“The expectation is that footfall might decline [this year]," says Lisa Hooker, PwC’s consumer markets leader. "The growth will be online so it’s not going to help physical retailers.

“Black Friday does split the population: half like it, half don’t. But retailers can’t ignore these events.” 

Taking part means extending opening hours and paying staff overtime to sell products at low margins.

Whilst it started as a one-day sales bonanza, Black Friday expanded to include “Cyber Monday” and has been getting longer and longer. This year it falls closer to Christmas, pulling forward retailers' most crucial trading period of the year.

Black Friday is cheek by jowl with the Christmas period this year, jeopardising festive sales Credit: Mark Makela/Reuters

Shops used to rely on festive trading to pull shoppers into stores and keep themselves afloat; that is much harder if customers have already blown their cash in November. 

One retail analyst says there has been more discounting this year than in previous years, with so-called pre-Black Friday deals being introduced. Another – no fan of the event – simply says: “Are British retailers mad?”

Veteran businessman Sir John Timpson says: "Once a retailer has got a taste, it's difficult to quit. Every shopkeeper strives to beat last year’s sales so once a big Black Friday figure has been posted, the only way to do better is to repeat the promotion every year. In doing so, they forget that success is measured in profit and cash flow, not turnover."

Aware they have created a rods for their own backs, some businesses are deliberately spreading out the promotions. Electricals seller AO World, for example, refers to the event as "Black November". This makes it easier to manage orders and deliveries as electricals have become one of the main attractions.

Some small, independent firms eschew the event altogether, increasingly closing their shops on Black Friday in protest as they can’t afford steep discounts.

High street burden

Because of their buying leverage, high street chains have a little more room for manoeuvre. But it still causes problems for the likes of John Lewis which has no choice but to cling  on to its “never knowingly undersold” price pledge.

The famous slogan does not extend to include online platforms but it does mean the department store has to price-match distressed rivals such as House of Fraser and Debenhams in their discount blitz.

Other established high street names, such as Next or Marks & Spencer, have taken a cautious approach to price cuts. 

Next’s chief executive Lord Simon Wolfson said earlier this year that the event would be phased out by retailers and incorporated into mid-season sales. 

“[Black Friday] is for clearing stock that you’ve got a very low chance of selling at full price," he said. "What I don’t think will happen is retailers will say, ‘I’ll take my best stock and reduce it'.”

For jaded retailers stuck in a trap of their own making, there are at least a few signs that Black Friday's allure may be fading with shoppers. 

In the UK almost a third of consumers wait until the day to decide what to buy, indicating that the novelty is slowly wearing off. Moreover, the money expected to be spent this year is the same as last year as growth plateaus.  

Nevertheless, more than 60pc of people are expected to participate in Black Friday this year, a slight increase from 57pc last year, according to research firm Kantar.

“The fact that it’s pushed so heavily by the likes of Amazon means it will continue to be online," says Zoe Mills, a retail analyst at GlobalData. "Physical retailers still have some opportunity to capture spend but it might be the case that what they’re seeing is consumers browsing in-store and then shopping online.”

Black Friday earned its name because it was the day when stores historically became profitable just before the Christmas shopping season. 

While very few retailers can afford to ignore it, if they don’t change their approach to Black Friday to their advantage, the event is increasingly just not worth it.

'Fake discounts'

Black Friday sales offer few real discounts, consumer group Which? said this week. It claims that most goods are cheaper or cost the same at other times during the year and retailers are simply using the occasion to hype illusory deals. 

Echoing those findings, shoppers are increasingly cynical towards promotions with a fifth believing they are not genuine, according to PwC. 

Retailers have been admonished in the past by the advertising watchdog for using tactics such as clock countdowns or highlightling limited stock to pressure customers to make a purchase quickly. However, just 8pc will shun the sales entirely. 

“Consumers are increasingly savvy to the deals offered by retailers, and are more accustomed to shopping around for the best deal,” says Mills at GlobalData. 

“Yes, many of the items sold will be on promotion at other times of the year, but Black Friday still offers consumers the chance to save money on present buying in the Christmas run-up, which will be very important to some.”

Typically, businesses such as AO World, Dixons Carphone and Amazon, which sell electricals, will negotiate with suppliers months in advance to secure advantageous deals that won’t hurt their earnings.

For fashion retailers, who can’t negotiate price cuts in the same way, the impact on the bottom line can be greater.