Tuesday, December 2, 2008

Black Friday - Part Two

Black Friday is so named because the sales from that day, the day after Thanksgiving, historically represent the point at which retailers begin to turn a profit for the year. They move from being in the "red", or below the break-even line, to being in the "black", the territory of net profits. Presumably, the masses of shoppers trying to get a jump on Christmas on that day, in large measure, are responsible for that shift from red to black.

My question is this: if Black Friday is such a great day for retailers, why not make some wholesale changes to the entire event in order to generate even greater amounts of revenue.

The problems, as I see them:
  1. Crowds - Black Friday draws every type of person out into the world. People that can't drive or park. People that lack basic consideration for others. People that can't see well or count. People that can't write a check in less than five minutes. I'm not saying anyone should be prohibited from shopping, but the environment created by Black Friday brings too many people into too small a space. The finest military marching band would have difficulty getting each member to navigate the scene effectively.
  2. Small Window - Many retailers run their "doorbusters" only for a few hours very early on Black Friday. I didn't count, but I'm sure there were at least 40 ads in the paper on Thursday. Retailers are competing for dollars, but by asking everyone to be in so many different places at the same time, they are harming themselves. They force consumers to make an exclusive choice. Many stores have checkout lines of 30 minutes or longer. That wait eats up the time when those shoppers could be out shopping at other stores. They are cannibalising each other by monopolizing customers.
  3. Limited Inventory - How can a store ask tens of thousands of people to come buy products at their store and then only have a few items in stock to meet that demand? We'll hear in the news about a difficult holiday shopping season with lower-than-expected sales. I walked away empty handed from at least four stores on Black Friday simply because they didn't have what I went in for. I didn't have time to poke around for alternatives because I had to get to my next store before they were sold out. 
I see it all like a hydroelectric dam. There is a certain volume of water that the dam can handle. That volume of water has value in the potential energy it can generate. We want them to run as efficiently as possible in order to generate the greatest amount of electricity at the least possible cost. When there is too much water behind the dam, it spills over and is wasted. When there are too many people in too little area, trying to buy too few products at too many stores, that is like water spilling over the dam. Capacity is exceeded. Opportunity is wasted. Inefficiency prevails.

Anyone can see the Black Friday ads from practically any major chain several weeks before the big day. Web sites like bfads.com and blackfriday.info distribute the information in several formats and provide a forum for the public to discuss the deals. Reasonably so, most of the deals are in-store only, i.e. not available online. Retailers want customers in their stores so that we can buy other things while we are there.

Some ideas for a better customer experience and an even better holiday haul for retailers:
  1. Allow consumers to pre-order products that they will want to buy on Black Friday. Retailers could then plan their inventories accordingly and hopefully have enough on hand to meet demand. 
  2. Extend Black Friday into "Black Weekend" or "Black 10 Days After Thanksgiving". How many of us stay home on Black Friday just to avoid the madness? Most of us. Were it not so strenuous, how many of us would like to partake in the bounty of great deals that abound? Again, most of us. If we're sitting at home, retailers have a 0% chance of selling us anything on Black Friday. If we're in their store to buy their loss-leader, there's a fair chance we'll buy other stuff, too. Therefore, it makes sense to do whatever it takes to get people in the door.
  3. If a store has parking for 500 cars but can only serve 200 per hour in the checkout lines, that's not good. Long checkout lines are bad for business. Some economists will argue that if the store check stands are operating at capacity and there is a long, steady stream of customers, that is ideal because the store is selling everything it possibly can. I would counter that there is a downside. Water over the spillway. In each of the stores I went to I had other items in my cart that I had picked up during my search for the item on my list. My thinking was, "If I have to stand in line anyway I may as well make it worth my time." However, in each case where the item I wanted was not available, I ditched my cart along with its contents and headed straight for the exit. There were A TON of abandoned shopping carts in all of the stores I visited. To me, that represents lost revenue. Those customers have left for one reason or another (e.g. did not find what they were looking for, too crowded, lines too long) and are not coming back.
Retailers obviously want demand to be as high as possible in order to generate as much income as possible. There is natural high demand on Black Friday and during this time of the year in general. The basics of supply and demand dictate that the solution lies in increasing supply to meet demand. Pre-ordering will help retailers plan their inventories more appropriately. Extending Black Friday over several days would allow more customers to get into the stores. It would also spread the customer volume out over a longer period which will reduce the peak pressure overall and help retailers serve a larger percentage of customers.

A monsoon versus constant rain. You can plan for the rain. Not much you can do about the monsoon except to find some cover and wait it out.

1 comment:

SMDStudio said...

You should submit this to a real newspaper somewhere - the Wall Street Journal? ;> But really, I bet there are online economic ezines that would love it. Can you actually sell your writing on the internet?