Black Friday kicks off the last lap in the trading year.
No-one needs reminding what a tough year it’s been. But we do all need to look at the underlying drivers – you can’t hope to deal with an issue without first understanding the what and the why.
I first warned of looming overcapacity over 15 years ago. Even before online came along, it was obvious that massive capacity growth every year would have to end sometime. The single biggest driver of change in retail is oversupply, but it’s far from alone.
“Finding out how damaging Black Friday is has cost many brands in both margin and reputation”
Overcapacity is not a single number, reached at a point in time. The law of diminishing returns has been kicking in progressively for over 15 years, faster and deeper at some retailers than others. Responses have been different, but two are particularly common – cutting staff and cutting prices.
Relative newcomers to this industry will be surprised to hear that discounting once only happened at specific times of the year, in order to shift stock to make room for the next wave. It never ever happened in the run-up to Christmas.
Why would it? Why would anyone want to discount product at the very time you are aiming to make your core profit for the year? And staff? Service is at the heart of retail, so cutting staff (however it might be dressed up in a press release) will reduce your ability to deliver.
All this is bound up in the fundamental shift we are seeing. Trust in brands is being eroded by the day. Inevitably, that erodes margins. Adding value is about the brand, and a brand’s oxygen is customer trust. If the customer can no longer rely on the quality of your product and your prices, you are in real trouble.
So on Black Friday, I am reminded of just how lemming-like the industry has become. Finding out how damaging Black Friday is has cost many brands in both margin and reputation.
“Chasing sales at any price is always damaging – in this market, it’s life-threatening”
Repairing this erosion is challenging but can only ever begin at the top. Trust is built on the belief of stakeholders and the leadership team. You cannot build customer trust if these two critical constituencies don’t first buy the proposition. This, in turn, will require courage, especially when weaning off the discount drug.
When your competitor set is discounting, you may well lose some sales for a while. If you do not truly believe your brand is good enough and strong enough to withstand this, you have already lost a core part of the battle. You are saying you can no longer set your own competitive agenda.
There are some sales and some customers you don’t want. Chasing sales at any price is always damaging – in this market, it’s life-threatening. This is exactly what the many retailers have done and are doing, sacrificing engagement with their core customers in pursuit of growth from peripheral shoppers.
They have built stores that are too big and filled them with too much product.
This all needs to go into reverse; refocus on those core customers in order to repair trust. It will take time and courage but if you don’t have that belief, you can forget about trying to persuade your market.