Black Friday – Where does this now fit into a retailer’s sales/promotion strategy?

Black Friday

Black Friday is a well-established American day of promotions centred around Thanksgiving Day. Amazon initially brought the concept across the pond in 2010 but, without question, it was Black Friday 2014 that was a pivotal shopping day in UK retailing history - £1m was spent every three minutes resulting in total sales of over £800m that day and store traffic across the UK saw a 23% jump.

Also on KPMG.com

  • More disruption ahead for the traditional UK retail calendar
  • When it comes to participating in Black Friday, retailers need to decide early – are you in or are you out?
  • Does Black Friday now mean the January sales are redundant?

Black Friday is a well-established American day of promotions centred around Thanksgiving Day. Amazon initially brought the concept across the pond in 2010 but, without question, it was Black Friday 2014 that was a pivotal shopping day in UK retailing history - £1m was spent every three minutes resulting in total sales of over £800m that day and store traffic across the UK saw a 23% jump.

With the increasing power of American brands, it has become impossible to ring-fence the UK and other markets from US retail industry’s online promotions associated with the kick-off to the Christmas shopping season. As Martin Hayward, Founder at Hayward Strategy and Futures, highlighted, “it’s quite a wonder that the day after Thanksgiving was the largest trading day in UK retail last year, when the UK doesn't even celebrate Thanksgiving.”

Unfortunately the knock on effect of Black Friday 2014 was the weakest December sales growth since 2008 of just 1% and online sales achieved their lowest ever growth of just 5% which suggests that retailers still have a way to go in adapting their sales and promotion strategies to make the most of it.

Notably, it is not just Black Friday that is set to shake up the traditional UK sales/promotion cycle.  Now, more than ever, the UK retail calendar is susceptible to outside “disruptors” like Cyber Monday, and more recently, Amazon Prime Day.  David McCorquodale, Head of Retail at KPMG, pointed out that “Singles Day in China is the biggest promotions day in the world, driving $9.3bn of sales in 2014, up 61% on the previous year.  Being on Remembrance Day will stall its entry to the UK, but not forever.”

So what options are available to retailers who want to reap the benefits of these new discounting periods without incurring the chaos of 2014’s “black and blue Friday”, which saw in-store riots and numerous retailers’ websites fail.  The KPMG/Ipsos Retail Think Tank (RTT) met in July to discuss how these new promotional periods fit in to the traditional sales calendar, and what retailers can do to optimise their strategy.

The consumer is now in control

In the past, promotions were driven by the need to shift end of season stock, as a reaction to an unforeseen sales slowdown, or around key events such as Mother’s Day or Christmas. Mike Watkins, Head of Retailer and Business Insight at Nielsen UK, emphasised that “the challenge we have is that shoppers` no longer think in this way.” 

The recession and discounting trends within the sector have fundamentally changed the consumers shop. Research from Conlumino reveals that 75% of consumers would rarely buy certain products at full price, and 62% say they wait to buy until a product is on offer or discounted.

In today’s digitally enabled world consumers can shop for anything, anytime from anywhere. No longer are retailers, distributors, or brands in control - it is the consumer that is firmly in the driving seat. “Put simply,” said Mike Watkins, Head of Retailer and Business Insight at Nielsen UK, “we should now consider ripping up the old rule books for promotional strategy.” As such, retailers need to find a way to play their cards better to make the most of this new consumer mind-set.

With high-profile US owned brands pushing it hard, the swathe of media coverage publicising it, and the sales explosion seen in on November 28th 2014, Black Friday looks to be here to stay and the initiative will probably expand into Continental Europe. Maureen Hinton, Conlumino, highlighted that “the issue for retailers is in how they can benefit from this demand, while not losing margin, or damaging their reputations due to operational inefficiencies.”

Learning from the past

To those outside the world of retail, last year’s Black Friday phenomenon may have looked more like an own goal than a dazzling demonstration of clever marketing. As Martin Hayward, Founder, Hayward Strategy and Futures, suggested, the strategy appeared to be somewhat incongruous: “sell lots of product, at very low margin just when shoppers are gearing up to buy lots of product for Christmas, the one time when they really do let go of the purse strings.”

Both physical and online “stores” buckled under the pressure as retailers had not planned for the extraordinary deluge of demand from bargain hunters:

In shops, many retailers struggled to cope with the crushes and the less than exemplary behaviour of “keen” consumers. In the days following Black Friday 2014, media coverage picked up some of the extremes noting that the lack of security which concerned police forces. James Knightley, Senior UK Economist at ING, suggested that in store “retailers need to work on the staffing levels and the location of the key items being marketed.”

In the digital sphere, numerous websites failed with loading times taking considerably longer than normal meaning that retailers lost out as consumers were deterred from purchasing. Negative headlines last year also flagged retailers’ sites, warehouses and fulfilment partners not able to keep up with demand.

However, having lived through last year’s chaos, retailers are in a position to be much better prepared for Black Friday 2015. To avoid website slowdown and even collapse, James Knightly, Senior UK Economist at ING, said “retailers need to stress test their websites to determine whether they can cope.” With such a surge in online orders during Black Friday 2014, making sure web channels can withstand this spike in activity and are fully operational will be crucial.

In addition, retailers might look at ways to control the surge website traffic on the day. For example, for Amazon Prime Day (a single day of discounting in celebration of the retailer’s 20th Birthday) which took place only a few weeks ago, only Amazon Prime customers were eligible for the discounts meaning they had to sign up in advance.  Dr Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance, noted strategies such as these “could knock down the frailties of the 2014 Black Friday debacle by delivering a proactive, managed approach, far more refined than the blunderbuss approach adopted by retailers last year.:

So are you in or are you out?

When the concept of Black Friday originally travelled across the pond, reaction from UK retailers was largely split into two camps. Some ignored it completely, preserving margins and hoping that UK consumers would still have an appetite post-Christmas to snap up a bargain. At the other end of the spectrum, some retailers decided to join in, matching bargains pound for pound. David McCorquodale, Head of Retail at KPMG, highlighted that “ultimately, both of these were losing strategies as the former ceded market share and the latter backfired as retailers had not planned this promotion with suppliers and so were left with reduced margins throughout Christmas and less stock for the ‘traditional’ post-Christmas sale.”

With the benefit of hindsight, retailers therefore have to make a choice, and make it early – they are either in or out – but if they decide to participate, it’s crucial to get the strategy right and this needs meticulous planning and careful execution rather than snap last-minute discounting decisions.

For those who decide to opt out, Martin Newman, CEO at Practicology suggested that “early communication that you won’t be discounting over Black Friday may help to alleviate consumers holding off in expectation of discounts to come.”

Prepare for promotions

Those who accept Black Friday as part of the promotional calendar need to make buying and merchandising decisions promptly, buying specifically for the post-Thanksgiving promotions and building discounts into target margin figures.

In addition, to really make the most of the introduction of a short window of heavy discounting, retailers need to be disciplined in striking the right balance between volume and margin on the day itself as well as for the rest of the Christmas period.  Richard Lowe, Head of Retail and Wholesale at Barclays, said: “Retailers shouldn’t assume that they need to dramatically discount all their products.  A more nuanced approach, focussed on limited lines and targeted reductions, will help ensure that retailers can realise the benefits of increased volume on Black Friday without disproportionately damaging their margins or lowering the chances of delivering strong overall Christmas results.”

Leverage the logistics network

At the same time, retailers need to be meticulous in thinking through the impact on their distribution and procurement networks. David McCorquodale, Head of Retail at KPMG, described: “a crucial part of any retailer’s sales and promotion strategy is to know what to promote, when to promote it and to have excellence in supply chain in order to be able to both work with suppliers around the promotion and also to fulfil any orders. Mess this up and you probably mess up Christmas itself.” Therefore, enhanced communication with suppliers and logistics companies is essential for the process to run smoothly.

Ensuring that a finely tuned logistics process is in place is also extremely important to safeguard customers receiving their purchases in a timely fashion.  Even if retailers are offering the best products at the lowest prices, if they are not able to deliver this could be extremely damaging to a company’s reputation.  Nick Bubb, Retail Consultant, said “what will be important is that, as well as funding and “planning” promotions with suppliers, retailers must think through the impact on their distribution and logistics networks of a huge bulge in business at the end of November”. Testing supply and delivery channels throughout the year is a good way to ensure operations are fully functional and able to deal with fluctuations in traffic and demand.

Conclusion

Overall the RTT agreed that Black Friday certainly has made a significant impact on the UK retail calendar, and that impact is likely to grow further. As Andy Street, Managing Director of John Lewis, said “it is impossible to put the genie back in the bottle.”

Given the date itself is somewhat insignificant in the traditional UK calendar, one approach could be to extend the sales event over a whole week, wrapping up Black Friday, Cyber Monday (and the days in between) in a neat little bow. This would certainly reduce the risk of overcrowded stores, alleviate pressures online, and prevent logistics being overstretched.

Moreover, with Black Friday a “fixture” in the minds of the UK consumer it needs to evolve from being just another “tradition” or sales day. David McCorquodale, Head of Retail at KPMG pointed out that “those with supply chain excellence and a genuine understanding of the art of promotion will succeed, and ‘fixtures’ and ‘traditions’ will be eroded.” Martin Hayward, Founder at Hayward Strategy and Futures, added: “in an improving economy, the signs are good that retailers will learn to use this new sales opportunity appropriately, buying special stock well in advance, and protecting the margins on their key lines to gain uplift without substitution.”

However, as Dr Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance, noted “Black Friday 2014 simply served to pull sales forward and threaten margins, rather than grow the size and value of the cake.” As such, it may be that we experience a longer pre-Christmas sales period with the comparative success of Black Friday sales determining retailers pricing and promotion strategy the rest of the holiday period. Should this be the case, maybe the question on retailer’s lips shouldn’t be “what do we do about Black Friday” but instead “do we really need January sales?”

For media enquiries please contact:

Jessica Liebmann, PR Assistant Manager

T: +44 (0)207 311 3245

M: +44 (0)7551135778

E: jessica.liebmann@kpmg.co.uk 

Follow us on twitter: @kpgmuk

KPMG Press Office: +44(0)207 694 8773

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such

Connect with us

 

Request for proposal

 

Submit

KPMG’s new-look website

KPMG’s new-look website