Black Friday’s importance is diminishing in land in which it was born. Conlumino managing director Neil Saunders delves into the reasons why.
Like pumpkin pie and long lines at airports, Black Friday is a US holiday tradition.
Yet unlike pie and airport lines, Black Friday is proving to be a less resilient holiday custom. While it remains a massive occasion, generating spend of almost $55 billion (£44 billion), it is struggling to retain consumer interest and to generate significant growth.
The waning of this great retail event is relatively recent. In the years after the financial crisis, Black Friday spending soared as more optimistic but still cautious consumers dusted off their wallets to buy, at discounted prices, things they had denied themselves during the years of austerity.
That rally was short lived: after peaking in 2011, growth rates became more muted. For the past few years spending uplifts have come in below average retail growth and well below growth for total holiday spending, including Christmas. In other words, as a share of total retail, Black Friday has become less significant.
This year will see a continuation of that trend with Black Friday spending in the US forecast to grow by 1.9% – a lacklustre result, and one that compares badly to the slated 3.4% uplift in Christmas retail spend.
Why is Black Friday struggling?
The main reason is declining interest. Since 2009, the number of consumers shopping Black Friday has been in decline. Last year 61% of Americans participated – a sizeable proportion, but down from a peak of 66% in 2009. The decline in younger shoppers has been particularly acute.
The factors behind this are multifaceted. Part of it is down to the fact that consumers are now bombarded with offers and deals all year, so Black Friday is not all that different to most other days.
Part of it is the backlash against the blatant consumerism of the occasion, a consideration especially acute among millennial shoppers.
And part of it lies in the fact that consumers, while better off, are still careful with their spending and are not in the mood to buy unnecessary fripperies simply because they’re on special offer.
While Black Friday may not hold sway over consumers in a way that it once did, it remains a significant event that interests and engages many Americans. However, the way in which those people shop the occasion has shifted and has created headwinds which are buffeting growth.
The rise of online
The main shift is the rise of online, which is taking an ever-increasing proportion of Black Friday spend. This year online spending will grow by 18%, taking the share of online sales for the occasion to over 10% for the first time.
However, as welcome as this growth is for online and multichannel retailers, it does not come without an impact on spend at physical locations. This will grow by a paltry 0.3% this year – the lowest non-recessionary growth rate ever for Black Friday.
Aside from the growth squeeze for physical retail, the rise of online has created three further challenges.
The first is an increased focus on price. Part of the convenience of online shopping is that it makes price comparisons easy. However, this means deals on comparable items or brands must be sharper to generate interest: something that has eroded margins over recent years.
The second is the cost of fulfilment. This is still not fully paid for by consumers and therefore diminishes bottom lines.
The third is the diminution of physical locations. While stores remain a destination of choice for most, the numbers of shoppers visiting them over Black Friday has been in decline and this year will likely fall by a further 10 million.
Online has played a major role in this shift, but it has not taken up all the slack in terms of spending. This is mainly because digital Black Friday shoppers are more focused in their buying behaviour: spending less and visiting fewer retailers.
These dynamics apply to other occasions. However, Black Friday is a very discretionary event. Unlike Christmas or Thanksgiving – when consumers feel compelled to buy and have an expectation that they will spend large sums – Black Friday generates no such urgency. Consequently, it bears the full brunt of shifting retail trends.