Does Starting Black Friday Sales on Thursday Make Sense?

Tomorrow is Thanksgiving.

It's time for family gatherings, turkey and football, of course. And more and more it's becoming a time for many retailers to try to get a jump on their competitors by having Thursday evening sales.

But does it even make sense for the retailers to be doing this? Will it really increase overall holiday sales or will it just increase the retailers' expenses, thereby reducing their profits, while upsetting lots of good employees by forcing them to work on Thanksgiving evening?

In other words, just because others are doing it, is it a profit and market share enhancer or simply another dumb idea? We won't know the answer to that question for a few more years as the "new" Black Thursday effort either is demonstrably proven to be a good or bad idea. Customers will make that choice.

My guess, however, is that dumb idea will win and that total sales over the holiday period won't increase but expenses and the lost good will of employees will increase. In other words, this 'new tradition' of earlier bird shopping looks very much like a zero sum game to me.

Retailers' Black Friday Arms Race Backfires tells the tale:

"With retailers' Black Friday arms race spilling over into Thanksgiving Day, everybody might be better off with a dose of detente.

It was bad enough last year, when Wal-Mart offered "door-buster" deals on toys starting at 10 p.m. on Thanksgiving, and several other stores, including Macy's and Best Buy, opened at midnight. This year Sears is joining the fray, opening up at 8 p.m. on Thanksgiving. Target is opening up at 9 p.m. And so it goes.
 

Retailers, of course, will be quick to crow about the customers drawn in by ever earlier Black Friday openings. But it's not clear that the early sales accomplish much—and in the longer run they may raise costs.

The holiday shopping season is basically a zero-sum game: People spend what they are going to spend. The broad category of department stores and other retailers (such as clothing stores) that make department-store like sales fetched about 21% of their total sales last year in November and December, according to the Commerce Department. The share was the same in 2010, 2009 and 2008. It has drifted down slightly over time: A decade ago, the share was 23%.

What retailers are doing with tactics like opening ever earlier on Thanksgiving, then, is fighting for a bigger share of holiday spending, as opposed to making the pie bigger.

 

Indeed, one thing that last year's aggressive Black Friday maneuvers appears to have done is contributed to a larger-than-usual lull in sales in early December, says International Council of Shopping Centers economist Michael Niemira. Last year, the ICSC-Goldman Sachs GS -0.14%weekly sales index fell by 2.4% over the two weeks following Thanksgiving week. That was the largest drop since 2000.

Maybe the retailers that pushed up Black Friday sales last year captured some market share by doing so. But those gains will likely only be temporary, whittled away as competitors follow suit. What's more, once they have made the shift, retailers will be unwilling to go back to the old days when they waited all the way until Black Friday to hold Black Friday sales, because that would make for tougher year-over-year sales comparisons.

Ultimately, retailers may find that all the Black Friday shifts have really achieved is the higher costs they incur from paying employees to come in for Thanksgiving. And if the job market continues to improve, those costs will only increase: It is easier to find people willing to work on a holiday with the unemployment rate at 7.9% than at 5.9%.

The reason retailers began the Black Friday arms race was to spark sales boosts that would appeal to investors. The irony is that all they may accomplish is a narrowing of profit margins that makes their shares less attractive."

SUMMING UP

For those customers who want to shop Thursday evening, have fun.

For the rest of us, there's still going to plenty of time remaining 'til Christmas.

And plenty of good deals, too.

For the "earlier bird" retailers, my guess is that it's not such a great idea and won't prove to be the beginning of a long term trend.

But as more of them choose to open early, others may feel compelled to do so, if only to protect their market shares.

Competition is great, and consumers will reign in the end.

That's how markets work.

Thanks. Bob.