Black Friday and the Shopping Craze

Today, the day after Thanksgiving, marks the first day of the holiday shopping season. The retailing industry terms this day ‘Black Friday’.

In theory, stores expect to switch from losses (accounted for in red color in financial statements) to profits (accounted for in black color.) Stores, big and small, offer hefty discounts and attractive promotions to lure shoppers. Consequently, Black Friday is one of the busiest shopping days of the year.

• Stores open as early as 5:00am and publicize low-ticket items to attract shoppers. Often, stores carry limited quantities of deeply discounted items. Thus, shoppers scramble to enter the stores and fight to lay their hands on these items. See interesting news stories of shoppers fighting for bargains here, here and here.
• Most stores offer discounts for only a few hours in the morning. For instance, today, Wal-Mart’s discounts were limited to 5a.m. to 11a.m. Shoppers transit from store to store and families split-up to reach various stores before discounts terminate.
• Stores hope that once shoppers are tempted to start the day at their stores, they will buy less-discounted and regular merchandise. Clearly, they risk margins in an effort to boost sales numbers, one of the key metrics in the retailing industry.
• In 2004, Wal-Mart decided to scale down on Black Friday offers in an effort to increase margins. Sales were poor; Wal-Mart stock dropped 4% the day it announced poor sales figures.
• This year, major retailers including Wal-Mart [WMT] and Target [TGT] reported weaker-than-expected sales numbers for October. Wal-Mart announced just 0.5 percent increase in same-store sales for October; these numbers were short of the 2 to 4 percent increase that it had initially expected. Consequently, Wal-Mart announced aggressive discounts on a wide-range of goods including consumer electronics.

As I hopped from store to store hunting for bargains and gifts this morning, I ignored a few questions the investor in me had: Do Black Friday promotions pull sales from later in the shopping season? How many customers return goods they purchased on Black Friday? If a retailer fails to capitalize on the Black Friday craze, can it make up during the rest of the shopping season? Are sales numbers more important than margins?