Black Friday--from the corporation's point of view

Water Cooler
#1

I can see why Black Friday is such a big deal to people (as misguided as I think it might be). They think that they’re going to go buy a $8,000 Tv for $100 or something.

But from the business’s point of view, what’s the attraction to Black Friday? That is, if Wal-Mart is selling 32-inch HDTV’s for $100, then they’re most likely losing money. And the fierce competition between stores probably drives these losses even higher.

You could say that the $100 TV is a loss leader, and that people are buying $20 DVD’s with a high margin, but I doubt that this happens in real life.

So I guess my question is this–what do these big box stores gain from the Black Friday madness? If prices are really that low, how are the stores making money? Why not just open for regular business at 9 a.m. on Friday?

#2

It’s an easy way to clear excess inventory. They open early because it is first mover. If everyone already got a cheap TV at 6 am why are they going to shop at your store at 9 am?

#3

It’s also just advertising as people talk about the store.

#4

^So the company’s not actually looking to make money on this stuff. They’re just trying to get rid of it then?

I actually didn’t know that. I thought they were selling “normal” products at below-market price.

And why shop at my store at 9 a.m.? Because you’re still getting the same deal. You can go get your waffle-maker at 6, then come to my store to get the TV.

#5

I’d really like to get the point of view from a current bigbox retail analyst, or a former strategist from Best Buy/Walmart.

If i stroll across anything available for public use, I’ll report back

#6

In a tough environment I think they’re mostly just fighting for revenue. Best Buy, et al, have warned on margins this holiday because of the “promotional environment” or whatever they’re calling it. The WSJ today has an article talking about how retailers, in particular clothing/department stores work with suppliers and put grossly marked up suggested retail prices on items so that they can sell them for 40% off and still get their intended gross profit on the item.

#7

Many retailers will only carry a limited number of the advertised “best deals”. So, if Wal Mart is selling 32’ TVs for $100, each store might only have 10 or 20 of said TV. This is what makes it important to show up so early.

Then, if you miss out on the deal, but still want a TV, maybe you go and buy a higher margin TV…

#8

A lot of Black Firday merchandise (especially TV’s and electronics) are manufactured specifically to be Black Friday Items (i.e. cheap with no features). Warehouse clubs get this type of merchandise too. So when you see that $300 huge tv, you’re not getting that awesome Sharp/Sony/Samsung Smart TV with all the bells and whistles… you’re getting a $300 TV that is a just a TV… basically a big computer monitor with speakers and a remote.

The attraction for retailers (especially walmart) is to lure you in with these apparently amazing deals, with the intention of keeping you in the store to make your other normal purchases. “Oh, while I’m here I’ll pick up toothpaste, razors, wrapping paper, dog food… might as well”

#9

In theory it’s a branding event. In reality I don’t know if that holds when you have people getting trampled to death at Wal-Mart.

Retail is a high fixed cost business, so retailers want the highest traffic possible, and supposedly Black Friday helps build loyalty for the rest of the year among a customer base. Imagine the flipside – how pissed off people would be if they couldn’t fight each other in the aisle over an $8 waffle maker because Wal-Mart decided to cancel Black Friday this year. It would be epic rage.

#10

From what I understand, there is only a limited quantity of items that you can get at a steal of a price. You get the customer in your store and they’ll usually buy other (high margin) stuff.

#11

i agree from above, a lot of these sales are “while quantity lasts” so when you line up to get into a store for a 46" TV for $100, but it’s all gone, are you going to go home empty handed? or are you going to start looking at other TVs that are still “discounted” or at least some new speakers or tablet or video games…

#12

exactly

#13

Retail is all about driving store traffic. If you have ever listened to an earnings call of a major retailer, an analyst will always ask about the comp sales number and whether it is driven by 1) store traffic or 2) average ticket. Positive store traffic = more opportunity, builds the brand, brings in more potential buyers, and more hits to use a baseball analogy. Having a select few items at eye popping prices helps drive store traffic and gets people in the door which is what retailers spend countless dollars and hours trying to do.

#14

While I can’t fault the retailers for opening early, I just can’t get behind these Thursday night openings. Over the past decade, I’ve watched stores open earlier and earlier (6AM, 5AM, 4AM, 3AM, Midnight). Last year, I recall some stores opening at 10PM on Thursday and now this year, we’re seeing 8PM openings.

What I once characterized as fun has now become indecent.

#15

Just watched a segment about Walmart’s Black Friday prep and they are opening at 6pm on Thanksgiving.

#16

They’re getting more and more desperate. I wonder if GDP was at 4% if they would do that.