Sunday 17th Dec 2017 - Logistics Manager

Boom or bust?

With the summer sales out of the way, retailers used to start turning their attention to the Christmas peak – or they did until the arrival of ‘Black Friday’.

Penelope Ody

Penelope Ody

Given the chaos that surrounded “Black Friday” promotions last year, it is hardly surprising that it will be a key topic for debate at this year’s Omni-Channel Conference in September.

As everyone surely knows by now, “Black Friday” is the term used for the day after Thanksgiving in the USA, which typically marks the start of the Christmas shopping period. It is a rare extra day off work for American consumers and retailers have always used eye-catching promotions to persuade them to spend the time shopping for seasonal goodies. And why “black”? Because traditionally that was the day when, thanks to the boom in sales, the great majority of US retailers (where profit margins were significantly lower than in the UK) actually moved out of the “red”.

UK retailers are probably still rather more profitable than their American counterparts and neither Thanksgiving nor the following day are public holidays on this side of the pond; so why this day in late November has suddenly become the focus of such frenetic promotional activity puzzles me. It obviously also surprises John Lewis md, Andy Street, who was one of the few to disparage the event last year: “We’ve got to ask if it’s right to concentrate trade so much in that one period,” he said at the time. “My personal hope is that this is the high water mark for Black Friday. I don’t think we can put the genie back in the bottle but do we need to stoke that fire anymore? I personally hope not.”

The article first appeared in Supply Chain Standard, July 2015.

The article first appeared in Supply Chain Standard, July 2015.

Sadly, one suspects that a very great many retailers will be stoking that fire having put buying plans in place for cut-price lines, with a November delivery date, way back in January. But has anyone really stopped to count the cost? Last year, the usual gradual build up of sales in the run-up to Christmas stalled in early December, as Black Friday’s bargain hunters took stock of their purchases and credit card spend. There was plenty of negative media coverage, too, in the days following as online orders were delayed as distribution depots and carriers struggled to cope with the unexpected peak in demand.

While the high profile shoppers opted to buy in store, so did many who checked out bargains online first. According to James Lovell, smarter commerce solutions consultant Europe at IBM, Black Friday saw “60 per cent of digital traffic coming from tablets and phones but only 47 per cent of actual transactions were made that way”. “Only 47 per cent” is still a great many items that had to be picked, packed and dispatched often at no additional cost to the consumer thanks to “free delivery” promotions.

According to a recent survey by price comparison web site, idealo.com, 54 per cent of a sample of leading European online retailers also pay the cost for unwanted goods to be returned either by post or via services such as Collect+. Given that returns rates for online purchases now rival those familiar from the old days of mail order catalogues (e.g. typically 40 per cent for women’s wear) the cost of handling all these parcels is considerable, as are the vehicle capacity and manpower required to do so.

Back in the very early days of online grocery shopping, industry experts calculated that it actually cost £25 to process a home delivery order, although £5 was then regarded as the maximum customers would be prepared to pay. No doubt since then distribution systems have much improved and costs fallen, but “free delivery” still has to be paid for by somebody. Add a “free return” and “special Black Friday price” and margins must surely be very thin indeed – unless, of course, the retail buyers have squeezed their suppliers even more than usual.

Long ago and far away, retailers would have been quite aghast at the thought of slashing prices in the run-up to Christmas: the “sales” were delayed at least until Boxing Day. December was always the time when shoppers would throw caution to the winds and pay a little bit more for that special present. To introduce massive time-limited price cuts, creating such demand that there are riots in stores, major logistics problems, and a raft of additional returns to process at a peak selling time, seems to fly in the face of logic.

Perhaps negative media coverage will prove counter-productive for the high street and drive even more sales online this year? As a neighbour recounted the other day, last Black Friday she heard on the lunch-time radio that shoppers were rioting as they rushed to grab wonderful bargains. Being an intrepid old lady she immediately took the bus into Southampton and headed for John Lewis. She’d already planned to buy a new large television before Christmas, but thought a riot might add extra frisson to the shopping trip.

To her disappointment she found the electrical department deserted: “Where is the riot,” she asked. “Certainly not here,” said the helpful salesman – who went on to sell her a splendid new flat-screen TV at half price. A bargain for her certainly, but how much did retailers really benefit from all that hype?