How ‘Black Friday’ triggers a downward spiral of the retail industry

Just 4 hours into Black Friday (10am ET), the US National Retail Federation reported that $643M had already been spent in online sales, and it looked like numbers were on track to hit the $6.4B target for the day. Similarly, it was also reported that brick-and-mortar sales are estimated to be a whopping 23% higher than last year’s Black Friday. The better-than-expected offline and online retail sales numbers are being attributed to increased consumer confidence in the US, lower unemployment numbers, and ‘deep discounting’ by retailers.

What is ‘Black Friday’?

For those who are unfamiliar with the pseudo-holiday, ‘Black Friday’ is the day after Thanksgiving when online and offline retailers slash prices to entice customers to open their wallets to start off their Christmas shopping. As turnover is extremely high on this day — with many retailers contending that Black Friday weekend represents as much as a tenth of yearly revenue — retailers end up in the ‘black’, thus the term ‘Black Friday’. For brick-and-mortar stores, Black Friday brings about scenes of customers shoving their way into the store, grabbing TV sets off the shelves, and walking thru a virtual stampede of bargain-hungry shoppers. In many news clips that I have seen, the Black Friday chaos is reminiscent of zombie apocalyptic movie scenes where survivors scamper for whatever supplies left in stores. Are shoppers really willing to subject themselves to physical injury for a $50 discount?

The Pros and Cons of Heavy discounting

As happy as retailers may seem by reaching the ‘black’ this weekend, it pains me to think of whether the ‘Black Friday’ holiday is a more potent symbol of the downward spiral of the retail industry. Black Friday, for all its worth, pits all retailers in a price war — a war that can only be won by the retailer who gives the biggest discount. Already, the retail industry has been squeezed out of its margins — intense competitive rivalry, exorbitant lease rental rates, and increasing salary and benefits have eaten into retail profits. To embark on a massive markdown strategy, where more value is destroyed instead of created, is the nail on the coffin for many retailers. Heavy discounting is a good strategy when retailers use it to clear out past season and obsolete inventory, or when it is used as bait to lure in customers to the store. But discounting can never be a sustainable strategy for any retailer — instead of having the customer experience fully what your store has to offer (e.g. your excellent service, your store’s ambience, your visual merchandising), the only reason for your customer to visit you is because of your discounts. The retailer, therefore, is unable to present any other retail value proposition to their customer except for a ‘discount’. Of course, this argument is different for retailers who operate in factory outlets, as their business model depends solely on the markdown model.

The Value of a ‘Good Deal’

Instead of focusing on a discount, retailers must offer the value of a ‘good deal’ to their customers. And a ‘good deal’ does not necessarily mean a ‘good price’. A customer who visits a store and is able to enjoy the fruits of an excellent retail experience can pay full price for an item and still believe that he/she walked away with a ‘good deal’. When he/she walks into a store with an attractive window display, is served impeccably by a knowledgeable sales associate, offered freebies to join a loyalty program — basically served like royalty — he/she gets a good deal.

Creating an Excellent Customer Experience

In my earlier blogs, I discussed the relevance of creating an excellent customer experience as the only means to keep brick-and-mortar retail alive. When I watch scenes of shoppers fighting over a discounted laptop or LED TV screen, it makes me wonder — has retail really come to this? Let’s do away with retail’s absurdities and focus on the essentials.