Black Friday: the deafening sound of White Noise
The horror that is Black Friday and the damage it does to the UK retail market, interim results from B&Q-owner Kingfisher, AO World and Naked Wines.
8 minutes to read
• Mixed figures from Kingfisher. Q3 group sales declined by -3.1% (-3.7% like-for-like) to £2.9bn, with the French division (-6.0%) the main drag on performance. The business reported a 0.4% rise in total sales to £1,297 million for its UK and Ireland arm, although this was driven by Screwfix (sales of £477m, +7.9% overall, +3.7% like-for-like) rather than B&Q (sales of £820m, -3.5% overall, -3.4% like-for-like). The company remains in a transitional period in the wake of the departure of CEO Veronique Laury and her questionable One Kingfisher Plan.
• Online white goods electrical retailer AO World has reported a 16.3% rise in sales to £470.1m for the first half of the year. Excluding revenues from its newly-acquired AO Mobile business, sales were up +3.2% like-for-like. UK sales rose +20.3% to £402.7m, or +4.5% excluding AO Mobile. But like so many online pure players, profitably remains elusive, the business reporting an operating loss of £10.6m for the first half of the year. In Europe, the company has decided to close its Dutch operations, while Germany received a football manager-style vote of confidence.
• A similar picture of high sales growth but ongoing losses at online pure-player Naked Wines. For the 26 weeks to 30 Sep, the business reported a widening loss of £5.7m, from £4.7m in the same period in 2018. In contrast, total sales were up +16% to £87.5m, whilst revenues in the US rose by +24%. Pre-tax losses increased to £6.4m from £100,000 year-on-year. These losses were attributed to an increase in the amount spent on acquiring new customers, a revealing insight on the cost dynamics of not having any stores.
Stephen Springham, Head of Retail Research:
“We’re going to a do a lot less around Black Friday this year, but make a lot more marketing noise”.
The candid words of a director of an unnamed FTSE100 retailer that sum up much of the industry’s attitude to the pre-Christmas “extravaganza”. The John Lewis Christmas advert, Starbucks’ red cups, the Coca Cola truck or the annual Knight Frank Black Friday diatribe, take your pick as to what constitutes the start of the festive period…
What can I say that I haven’t said before? Black Friday remains the most ludicrous “event” in the retail calendar, when all the shortcomings on the high street are laid bare under a veneer of lazy, unimaginative marketing that struggles to conceal strategic, operational and brand weakness, if not to say outright desperation amongst retailers.
Has Black Friday lost its appeal? This is the question I’m being asked most frequently and if I say it has, most would probably argue that this is merely wishful thinking on my part. The sheer volume of marketing noise hitting a Spinal Tap-esque 11 would seem to suggest otherwise. But the fact remains that the dynamics have fundamentally changed since its arrival on these shores in 2013.
What was originally conceived as a one-day retail spectacular is now anything but. For one thing, operators from any number of non-retail sectors have merrily jumped on the Black Friday marketing bandwagon. Mobile networks are probably the worst offenders, but travel operators, domestic service providers and consumer product goods are not far behind. For them, Black Friday is just a marketing strapline they glibly apply to any promotion they may be running at this time of year. No special Black Friday discount, just a promotion that they would have been running anyway as a rolling programme across the year.
Has Black Friday lost its appeal amongst retailers? I would say there is definitely a mismatch between what the retailers say publicly and what they may admit behind closed doors. Any proclamations from a retailer that it enjoyed a “record Black Friday” should be taken with a pinch of salt, especially as they probably mask a substantial sales trough either side a supposed peak. In our many conversations with retailers, most admit to it being largely an exercise in damage limitation and that they only partake “because everyone else is doing it”. Retail herding at its worst.
Retailers’ strategies around Black Friday have definitely evolved in a short space of time. Most retailers have unsurprisingly moved on from the early days of in-store fights over a television and online supply chain bottlenecks. As I outlined last year, these days retailers fall into five broad camps in terms of their level of engagement with Black Friday, ranging from ‘Full Embracers’ (e.g. Amazon, Currys/Carphone Warehouse, Argos) to ‘Complete Abstainers’ (e.g. Next, M&S, Primark, Fat Face).
In broad terms, Black Friday “discounts” fall into three categories:
- Special Purchase Product
- Regular Promotional Product
- Discount to Regular Stock
Special purchase product refers to items that are manufactured or sourced specifically for the purposes of Black Friday – a high proportion of electrical stock sold around Black Friday falls into this category. Are shoppers actually bagging a bargain? Probably not, who’s to say what the ‘actual’ or ‘fixed’ price is of specially-sourced product?
As with mobile network operators, most retailers run rolling promotions throughout the year and these are often undertaken in collaboration with manufacturers or FMCG providers. Any that are run in November or December simply fall under the Black Friday banner. The same question – are shoppers actually bagging a bargain? No more so than they probably would at any time of the year. In fact, research from the likes of Which! and other bodies that monitor retail prices over a time period are increasingly suggesting that prices are actually higher around Black Friday than at other times of the year. All is not as it may appear.
Discount to regular stock is the one genuine ‘moving part’ around Black Friday, an area where shoppers can actually bag a bargain. But this is also the most dangerous ground for retailers and where they are in a ‘no win’ scenario in that it will directly impinge upon their gross margin (the very backbone of their business). Decisions on how much regular stock to discount tend to be reactionary and driven by short-term considerations, such as how trade has been in the preceding period and how confident retailers are in the final outturn for Christmas.
Fashion operators tend to dominate this camp and last year there was more embrace of Black Friday from them than we would normally expect, principally because consumer demand in October 2018 was so weak. Early evidence suggests that October this year was much stronger than last, so the hope is that there will be less engagement with Black Friday from the fashion players this year than last. The coming week will be very telling and an early indicator of who is trading well generally and who is struggling.
So, effectively, retailers are conning customers and undermining their brands in so doing. Or, the discounts are genuine and retailers are sacrificing their precious gross margin. And undermining their brands. In very simple terms, why Black Friday can never have any redeeming features.
Has Black Friday lost its appeal amongst consumers? There is some evidence to suggest that many shoppers have wised up to the fact that purported bargains are not necessarily all they seem. Also, there is definitely an element of consumer fatigue around the whole event. Research from Mintel showed that just 39% of consumers actually made a purchase during Black Friday last year. Of those that did, 58% didn’t think the discounts an offer during Black Friday 2018 were as good as previous years. A more recent survey from PwC looking at this year showed that UK shoppers were far less interested in Black Friday than consumers in other European markets.
Elongation of the Black Friday period is the other key trend. It is no longer a one day extravaganza as retailers simultaneously try to wring every last marketing drop from it while avoiding supply chain bottlenecks. It is now more than a week-end too, with many operators running Black Friday for several weeks either side of the day itself. Cyber Monday is now a dim and distant anachronism, it has been fully subsumed into the wider Black Friday noise. Black Friday has become an event without time parameters.
Of course, the proof of all of this will ultimately be in the pudding. The trouble is, the pudding itself is never very clear. Any actual spend or sales figures relating to Black Friday are nebulous in the extreme. For one thing, the time parameters are no longer set in stone as it transcends an undefined period. Secondly, any sales are “gross”, net of returns. And, as an increasingly online event, many items purchased over Black Friday will ultimately be returned and refunded and are therefore not sales at all. Thirdly, Black Friday cannot be looked at in isolation from wider festive trading patterns – did it merely displace spend or actually generate incremental growth?
One final observation: it will be even more difficult to get a read than usual this year due to fact that Black Friday itself falls late (29th November). Notoriously unreliable at the best of times, the CBIs Distributive Trades Survey for November will probably only refer to the first two weeks of the month. The official ONS figures (the least reported ones) for November are likely to run to 24 November only, so will not incorporate the full week before Black Friday itself. The British Retail Consortium (BRC) may try to make some adjustment to make the November figures meaningful, but negative narrative will predominate nonetheless.
Marketing noise. Lots of it. Extensive reporting, little of it informed or informative. Less actual retailer activity. The UK retail sector carries on regardless. Black Friday 2019 in a nutshell.