A Black Friday like no other: How the economy is changing Black Friday
This information is put together from news and analyst reports, dealnews' proprietary software analytics tools, and insights from the members of the dealnews editorial team, who have over 54 combined years of online deal-hunting experience dating back to 1997.
Black Friday Is No Longer a Day, It's a Season
When most people think of Black Friday, they think of the day after Thanksgiving. But the fact is, over the past several years, the idea of "Black Friday" has been expanding.
In previous years, Black Friday had become a two-day event, since many Black Friday sales are available online on Thanksgiving Day. Last year, however, Wal-Mart upped the ante with its "Secret Sale" promotion (pictured). That sale started exactly three weeks before Black Friday. It featured a high-definition DVD player (HD-DVD) for $99, Acer laptop for $348, and 50" plasma TV for $999, prices that are still aggressive a year later. Not surprisingly, Wal-Mart received millions of dollars worth of free PR for its "Secret Sale" (a misnomer if ever there was one). Importantly, Best Buy beat Wal-Mart's price on the HD-DVD player that day, showing a willingness to compete with its own loss leader and getting its own free PR.
Wal-Mart's goal was to extend the halo from Black Friday into multiple high-buzz sales events throughout November. You're likely to see the same game plan this year from Wal-Mart, which enters this holiday season much healthier than its competitors. And where Wal-Mart goes, Best Buy, Target, and the others must follow. It's a live-or-die holiday season for many stores this year. Retailers can't ignore the power of huge, "Black Friday"-like sales events on the run up to Thanksgiving.
And if a retailer is thinking about not competing, it had better think twice. Four years ago, Wal-Mart skipped Black Friday entirely, with no major ad push and no "doorbusters." The result was the worst after-Thanksgiving sales weekend for Wal-Mart in years. Retailers who don't want to compete with Wal-Mart by expanding Black Friday into a month-long event run the risk of having bad sales for an entire month, a death knell for most.
The Credit Crisis
The credit crisis is affecting retailers and will impact Black Friday.
Most retailers have to borrow money to acquire inventory, which they must then sell to pay off their debt (and keep the rest for themselves). However, banks have tightened their criteria for lending. As the credit markets have dried up, retailers are finding it harder to borrow from banks, especially since banks know that American consumers are spending less on non-essentials. For most retailers, costs to borrow are rising, costs that could destabilize a staggering retailer. Bankruptcy is no solution, since bankrupt retailers are starved of financing while they attempt to reorganize.
For the first time ever, there's a real possibility that some retailers will have to renege on Black Friday sales because they'll be insolvent by the time Black Friday rolls around.
- Many Retailers Will Go Out of Business Before Christmas
- The Best Deals Since the Dot-Com Bubble
- More Sales on Luxury Brands
Many Retailers Will Go Out of Business Before Christmas
Every year, a few struggling retailers file for bankruptcy (or go out of business entirely) after Christmas. It's a normal cycle. However, that's changing. Last season, CompUSA started liquidating its stores in early December, and it was completely gone by January. (The new CompUSA is now run by TigerDirect.)
This year, things have gotten worse. Linens 'n Things is already bankrupt (pictured). It's liquidating its stock online and in stores before closing shop. Circuit City is trying to avert bankruptcy by closing over 100 stores and laying off thousands of employees. Mervyns is closing all 175 stores. JC Penney is in trouble. Sears is closing yet more stores. And it's just October.
Make no mistake: Thousands of jobs are at stake, and so many stores going out of business is bad over the long-term. But in the short term, these stores must liquidate their inventory. Consumers benefit from liquidation sales. Plus, you'll soon see more closeouts at stores like Buy.com, Woot, Fry's Electronics, TigerDirect, and others that resell distressed inventory.
The Best Deals Since the Dot-Com Bubble
Stores may be in trouble, but that's a boon for consumers. All the signs point to this holiday season having the best crop of deals that dealnews has reported since the dot-com bubble burst in 2001.
During the bubble, online deals reached a level never seen before or since. Venture capitalists pumped billions into companies with no prospects or business model, like Pets.com, Mobshop, Outpost.com, Beyond.com, Flooz, and so on. But was it ever a time for shoppers! The Matrix on DVD (then a brand new release) was $2 shipped. WebMD gave away a free pair of New Balance running shoes worth $70. ValueAmerica's "ValueDollars" program essentially took 50% off everything, even computers.
This year's deals won't be so ridiculously good, but they should be the best deals since 2001 for two reasons.
First, only two things drive people into stores: Incredible products, and slashing prices. So far, there's no incredible new product for Christmas. (Look at CNET's must-have gadgets ... don't they seem to be basically the same items as last year's?) That leaves retailers only one choice: sales, sales, sales.
Second, far more retail and online stores than usual are going bankrupt. Inventory from bankrupt retailers is being auctioned off to liquidators. That inventory will eventually find its way to the stores listed on dealnews at well below their original prices. You'll also find older inventory at exceptional markdowns, especially from retailers pinched by the credit crisis that need cash as quickly as possible.
It's a perfect storm: Consumers have cut back spending. Stores must slash prices to drive traffic to their stores. Competition and reduced margins will drive struggling stores into bankruptcy. The credit crisis will hammer bankrupt stores, forcing them to auction off their inventory to those liquidators that still have access to cash. And finally, a $2,000 HDTV pops up on Buy.com for $1,199.
More Sales on Luxury Brands
Luxury Brands have to face facts: consumers are tightening their purse strings. They're smarter and pickier. There aren't a lot of events that bring out shoppers anymore. If luxury brands stay away from the single largest, most-hyped sales event of 2008, it could cripple their holiday sales and put them in a tailspin.
That's why you're likely to see luxury brands participate in Black Friday more than ever before. Apple, tech's #1 luxury brand, leads the way by having had Black Friday sales for several years running, online and in stores. Look for overpriced brands like Ralph Lauren, Coach, and Gucci to be dramatically discounted on or near Black Friday at Macy's, Saks, and their own retail outlets. Saks is running web coupons that apply to high-end brands, a rarity. Even Tiffany is pushing free shipping deals.
It's indeed a little macabre that the worst economy in four generations will yield the best deals on consumer goods in seven years. The real question is, if the deals are fantastic, will people still buy them?
If the majority of Americans are relatively unaffected by the economic pinch, as they are now, they probably will. Economists say that as consumers look to cut back on expenses, they tend to "nest": eat at home, entertain themselves at home, and so on. Indeed, a new, big, hi-def TV is actually much cheaper than going to the movies once a week (at $40 a pop for two people, that's $2,080 per year). The math is the same for video game consoles like the Xbox 360 or Nintendo Wii. A PlayStation 3 plays video games and Blu-ray movies at home. Renting movies and video games is cheaper than buying, which means that Netflix and Blockbuster Online for movies and Gamefly for games are cheaper.
Economy is perception. Much of the downward slide in the fortunes of retailers is based on consumers perceiving a rough economy ahead. Whether you'll take advantage of these deals depends on your own reading of the economic tea leaves.
Profiled by the Wall Street Journal and Smart Money, Dan de Grandpre is CEO of dealnews, which is ranked as the #1 bargain shopping site by MSN Money and one of the top Black Friday sales sites by PC Magazine.