Retail is better off without Black Friday
With Black Friday discounts lasting weeks and even months, retailers can't keep pace with the likes of Amazon and Walmart. Contributor Evan Magliocca discusses how brands must evolve in order to thrive.
As a former retail marketer, I’ve been thinking back on all of the strategy and planning that used to lead up to Black Friday and Cyber Monday. The long hours, the crazy promotional changes held tight to the chest like the president’s nuclear football, and the make-or-break flash reports that everything hinged on every morning for an entire week. I’ve reflected on the months of planning that were always thrown out the window as soon as the first sales numbers began trickling in to corporate.
My post-traumatic symptoms aside, I’m heartened to see that the Black Friday period is proving to be a success on initial reads. It’s a small victory in an industry that’s been battered with bad news for years.
Nonetheless, that had me thinking about what we define as success. We often just consider total sales numbers, but it’s baffling that we don’t look at margin in-depth across the industry. We just whisper about how low the margin rate was after meetings, yet it’s easily the most important metric we can try to make stronger.
The holiday season is now months of highly depressed margins that are shoved under the rug in exchange for expanding raw sales numbers. More worrisome is the evolution of Black Friday into the behemoth that lasts not days, but weeks — and now even months.
As with any successful initiatives in retail, the industry has bled Black Friday dry. Here’s why:
Group-think hurts retail
The original sin of retail has always been looking over your shoulder to see what the competition is doing.
Desperate brands moved discounts deeper and earlier, so their competitors kept pace the next year. It was the catalyst for Cyber Monday as e-commerce brands sought ways to keep up.
So the industry joined in on the action. As sales continued to decline through the downturn, desperate brands extended their global promotions into December, barely scaling back before they transitioned into the clearance season in January.
Fast-forward to 2017, after more than a decade of competitive evolution, and the retail promotional calendar is surprisingly steady in discounts from late November through the entire month of December, then directly into the clearance events of January and February. Black Friday is no longer a day, nor is it even a week; it’s a full quarter of discounts that are driven by urgency, not insights.
The comp model no longer applies
Good or bad is almost irrelevant at this point; urgency to hit end-of-year comps is all that matters. Yet that urgency is misguided by a measurement model that is woefully outdated given the transition from stores to e-commerce.
Measuring store sales year over year doesn’t apply when potentially half of those sales from the prior year have moved online. The pressure to match is unimaginably difficult, and it’s driving misguided promotions to increase traffic that’s simply moving to a new channel. Retail has made so much progress in measurement, attribution and customer data, but somehow the industry can’t let go of the comp model.
Needing to see green or red every morning to gauge performance is addictive, but retailers need to acknowledge that the foundation has shifted. The measurement model is one of the few archaic areas left in retail that technology hasn’t been able to break down, innovate and reinvent. Until a new model comes to the forefront, the urgency to depress margins with promotions will continue for the holiday quarter.
Amazon and customer expectations
While removing group-think and rethinking the attribution model will help retail get back on its feet, there is still one major change that is outside of the industry’s control. There’s a wave of changes in customer expectations that’s been sweeping through retail for years. It’s not just changes in shopping channels, but also in the way customers shop, what they value and when they’re buying.
The biggest issue for Black Friday (and beyond) is that retail has trained customers to wait. They’ve trained them to hold their money until the deepest possible discount that they know is coming. So, all those sales that make a successful quarter aren’t incremental, they’re just delayed. Even more worrisome, they’re the lowest possible margins, so when operational expenses and overhead are considered, the true earnings are minimal.
Brands essentially have two options: Ride it out as long as possible until the undertow takes them or rebuild strategically in ways that match the changing tides.
The deals aren’t done
We are going to continue to see 40 and 50 percentages on store signs and sites for the next couple of months, driven by group-think, misaligned sales models and Amazon dragging the rest of the industry around kicking and screaming. It’s unfortunate because the 10,000-foot view shows that these events are really a net negative for most brands.
There are a select few (e.g., Amazon and Walmart) that have such an enviable financial position that they can depress the market, push out competition and still drive revenue forward. Other brands that try to compete on that front fail, so it’s time to take chances, get closer to the customer and motivate in ways beyond sledgehammer-style whole-store promotions.
Quality over quantity
Doubling down on the same hard-headed solutions that haven’t worked for a decade isn’t helping. The answer to Black Friday and the general state of retail is simply smarter marketing.
CRM (customer relationship management), product affinity models and sophisticated email segments use precise promotions and consistently show return on investment compared to bombarding the full file with a one-size-fits-all promotion. Moreover, they’re effective without ruining product margin. Focus on customer file above anything else; it’s the most important initiative in retail.
Customer loyalty programs are one of the most lucrative programs in the marketing toolbox, but they need to be done with sophisticated, data-driven techniques to drive revenue. And don’t get stingy; customers can smell a bad program from a mile away. It needs to be mutually beneficial.
Quality also means taking a hard look at some standard operations. It means new store formats tailored to customers and not littered with 50-percent-off table signs. It means reducing store footprints drastically and not cannibalizing sales with multiple stores in the same vicinity.
Quality means making sure digital advertising doesn’t hoodwink you with opaque procedures and bad numbers. And most importantly, it means superior product. We often forget about that one, but a great product often sells itself.
Not a single strategy listed above is new — they’re time-tested and proven effective, yet many brands still lack the sophistication or will to implement them. The options are to change now or let Amazon and Walmart slowly eat away at your profits until there’s nothing left. The choice is yours.