Why I’m boycotting Black Friday sales as a retailer
There’s plenty of pressure on businesses to deliver a Black Friday bargain, but sales could be holding back overall performance.
Kristy Bannister is the co-founder of Dr Dough Donuts, an online gift retailer that specialises in delivering doughnuts, cakes and other gifts across Sydney. This year she won’t be holding a Black Friday sale. Here’s why.
Black Friday is almost upon us, and while consumer frenzy — and pressure on businesses to deliver a good bargain — is higher than ever, it’s worth taking a big step back to examine the business case against jumping on the bandwagon.
In some quarters Black Friday has become synonymous with over-consumption, but the lack of true value to be gained from chasing sales year after year is overlooked by consumers on the lookout for discounted Christmas gifts and businesses looking to cash in on hordes of shoppers. At the same time, retailers are operating under increased competition.
Thanks to a tough economy, profit margins are slim while the price of materials and labour is high. Enticing consumers on a shoestring budget to spend up is part of the reason why a number of businesses are choosing to participate in the biggest sale of the year. They may feel like they have no choice, and when there is so much hype around the leading shopping event on the calendar, who could blame them?
Intentionally skipping sales boosts profitability when trading conditions worsen
There are so many reasons in favour of businesses holding back from Black Friday. When the economy gets rough, the first order of business should always be to protect the bottom line and ensure every single decision taken is made strategically.
The long-term view is longevity can only be guaranteed if the business is actually making money. Small businesses have the odds stacked against them when it comes to competing with bigger retailers. They are especially vulnerable to going under and being cannibalised by the likes of Amazon, Kmart, and Shein.
Smaller operators cannot hope to win on price alone considering the massive margins and sheer volume of big brands with plenty of resources to burn. In many industries including retail, margins are already thin, and there’s not much wiggle room to turn a profit.
Australian Retailers Association profitability data shows the lowest EBIT belongs to the food & liquor category at a paltry 4.7%. Takeaway food claims a slightly better 10.9%, recreational goods 12%, and fashion and jewellery brings in 18%.
However, this is being eaten into by the compulsory wage growth that was recently mandated by the Fair Work Commission. Its minimum wage increase combined with skyrocketing inflation and stagnating immigration has gutted small businesses fighting to stay afloat.
When profit margins are wafer thin, the last thing you want is to trigger a price war with the competition. The cost of living crisis has caused retailers to host a string of near-constant sales but businesses are hardly better off for it.
Is slashing prices the right move for your brand?
When every dollar counts it may seem counterintuitive to pass over a potential moneymaker like Black Friday. It pays to keep in mind not all brands hold sales, and the reason for this is simple: discounting too much too often will reduce the value of your brand. Looking at the numbers, sales don’t always equal profit either.
In some cases, the bigger the turnover, the greater the loss — in money and brand equity. The studies back this up: research shows frequent sales promotions “run a greater risk of devaluing a brand than similar frequency of non-monetary sales promotion”. The truth is serving up discounts too often will create the impression that your product or service holds little to no intrinsic value.
Brands like Chanel, Peloton, Lush, Louis Vuitton, Cartier, and Canada Goose rarely have sales for good reason, and the effect is they are always in demand and always retain their high perceived value. If you’re confident in what you’re offering, it follows that the customer will be too.
Rather than discounting, brands can instead work on improving their product, services, and processes to create more satisfied customers. Don’t give products and services away for a steal, add value by perfecting every aspect of the customer experience. Make sure your service elements and the products are tailored to your key customers. They will always be happy to pay if they can be assured of consistency, good value, and superior service.
Beware sales-induced low customer spend
When every dollar counts, businesses may not realise that their sales could be holding their performance back. The fact of the matter is holding sales at expected times throughout the year results in customers ‘camping out’ for discounts. Rather than pay full price they will wait for sales periods to spend, an unfortunate phenomenon made worse by the fact that other businesses are also holding sales at the same time.
Not only do retailers have to spend money to promote themselves during peak sales season, they have to do so when customers are particularly spoiled for choice. Research confirms that 64% of online shoppers will wait for the items they want to be discounted before they pull the trigger to buy.
Some businesses are even eating into their own bottom line in pursuit of a wider customer base. However, a Harvard Business Review case study suggests this tactic does not necessarily translate to success. It found that 20% of customers were responsible for 225% of the profit of one company. Businesses may be better off tailoring their offering to satisfy this core group rather than those who will only spend during sales periods.
And businesses must never risk alienating their core customers who don’t necessarily shop based on price and may feel cheated by paying full retail when others are being given discounts days later. When considering whether or not to participate in Black Friday, retailers have to think of the kind of customers they want to build an ongoing relationship with.
Targeting those who would otherwise never buy from them anyway doesn’t make a lot of sense, especially when a number of things can be done to make customers happy. It doesn’t have to be about discounts at all — for instance, businesses can offer a rewards program with loyalty points and rewards for referrals.
Of course price is important, but so is value and quality. Even at heavily discounted rates, if the customer is unhappy with what they get, they won’t think any amount of money paid is worth it. So think carefully before you choose to jump into the Black Friday bandwagon — it’s simply not a great business strategy and it will affect your ability to bring in money all year round.
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