As Black Friday has become a fixture in the UK retail calendar, the cost of doing business for the event has escalated.
This year in particular could be seen as a tipping point as retailers come to terms with the expense.
From the margin hit of discounting goods to the cost of delivery and returns, there are plenty of headaches.
Two thirds of UK retailers now see Black Friday as “unprofitable and unsustainable”, according to research by LCP Consulting. That figure has doubled from a year ago, LCP says.
Fulfilment costs this time are expected to be a particular concern. Next-day deliveries are expected to be up 20% this year, according to LCP. That means an extra one million parcels will be expected to be with customers the next day.
Click and collect orders are also predicted to hit 3.5 million, but only half will be collected the next day, according to LCP. That will bring its own headaches for stores.
Some retailers – such as Argos and Tesco – have sought to ease the pressure by stretching out their Black Friday promotions over longer time periods.
KPMG supply chain retail transformation director, James Tilley, believes that is a smart move. “Over and above providing shoppers with more opportunity to bag a bargain, this also conveniently limits the pressure placed on the supply chain network by spreading the burden out over a longer period,” he says.
But it is the issue of returns that is likely to really spark consternation for retailers this year.
Five million parcels are expected to be returned following Black Friday, LCP predicts.
In London alone, around 27% of parcels are expected to be returned. That means retailers will have to manage an extra 50% of daily returns volumes in the week immediately after Black Friday.
Barclaycard has also warned of “serial returners” – shoppers who deliberately over-purchase and return unwanted items. Three in 10 shoppers put themselves into this bracket, according to the credit card company.
“All of this brings huge logistical pressures on retailers,” says Kurt Salmon consultancy partner Dan Murphy. “And it all comes at a time when retailers should be focusing their efforts on gearing up for Christmas.”
Threats to margin
Retailers are also faced with grappling with the margin-threatening nature of Black Friday. If the volumes are there, then a low profit margin is manageable.
And there is the hope that shoppers will simultaneously be tempted to spend on full-price items – but as Black Friday moves online that becomes less likely.
As one industry source, who wished to remain anonymous, says: “The whole premise of Black Friday is deep discounting on certain products that you sell at a negative margin, in the hope of driving customers to do a bit of full-price shopping while they are in stores.
“But shoppers are using Black Friday to buy that cheap TV that they don’t really need and purely shopping for discounts and bargains. That’s not really what you want from a retailer’s perspective.”
Shoppers may also be wary about whether they are grabbing a real bargain, based on research by Which? showing Black Friday deals are not always what they seem.
As Murphy points out: “There’s certainly some tap-dancing going around pricing, but that happens all year round.”
All this means, retailers need to have absolute clarity on whether Black Friday will work for them – financially and logistically.
“With sales volumes only likely to increase as Black Friday becomes more popular, any operational issues will be magnified by a surge in transactions,” says Tilley.
But he concludes: “Whilst the jury is still out on whether Black Friday is actually beneficial for businesses, consumer demand means it is here to stay.”
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