What does the future hold for Black Friday?

When it comes to Black Friday, can retailers continue to meet the expectations of their customers and still look after the economics of their business?

Our latest research has found the number of leading UK retailers that see Black Friday as an unprofitable and unsustainable promotion has doubled over the last 12 months. This figure has risen sharply from almost a third (32 per cent) in 2015 to almost two thirds (61 per cent) in 2016. However, in the US, where the retail bonanza originated, retailers remain convinced that there is still money to be made from Black Friday – with only a third (35 per cent) viewing it as unprofitable.

These figures will be published in full in our forthcoming report, The Future of Retail. The report will draw on recent interviews with over 100 leading retailers in the UK and US and, as such, it represents a barometer of opinion and insight into today’s retail sector.

 

Register here to receive a copy of the forthcoming report

Five million Black Friday returns

Our research also found that a third of UK retailers have seen returns increase over the last 12 months, with the majority stating that they see an increased proportion of returns following peak trading periods like Black Friday. Black Friday 2015 saw a marked increase in online sales compared to store sales and this trend is expected to continue for Black Friday 2016 – with an associated impact on returns volume.

Using retail market data, we estimate that five million parcels purchased on Black Friday will be returned, with London generally returning the most (up to 27 per cent of purchases), whilst Scotland returns the least (19 per cent of purchases). This will result in retailers having to manage approximately an additional 50 per cent of daily returns volume during the week immediately following Black Friday. 

With next day deliveries expected to be up 20 per cent from last year, an additional one million parcels will also be expected to arrive with the customer the next day (up to 7.5 million parcels).

Next Day Click and Collect volumes are also expected to rise for Black Friday. However, LCP data suggests that customers will only collect half of the anticipated 3.5 million Click and Collect orders on the next day. 

Understand profitability

The true profit impact of Black Friday is not driven by sales increases and gross margin; it is driven by the additional operating cost and the complexity of managing operational peaks. Managing picking and packing volumes is one thing, but you also need to have contingency in place to ensure delivery against service promises - no matter what the eventuality.

Managing returns

Retailers must also manage the processing of returns in a timely manner to credit the customer and get the merchandise back on sale to avoid the risk of having to mark down. Fashion returns are even more important, as these can be as high as almost two thirds of orders.

Our research also found that peak events polarise behaviour, with some retailers having high levels of control and organisation to managing peak, whilst others admit to an uncontrolled and chaotic approach. Having the flexibility to manage peak periods, such as Black Friday and Cyber Monday, has emerged as a key development for Retailers, with almost half (50 per cent) citing peak management in their top five considerations when developing their supply chain capability.

The majority of UK Retailers claim that Black Friday is margin erosive and unprofitable. The key question for 2016 is how many more retailers will follow Asda’s lead from 2015 and shun Black Friday involvement in favour of deeper promotions across December, or will perceived competitive pressure lead many to continue to drive Black Friday sales despite the prospect of short term losses and the potential for service disruption?

Contact Stuart Higgins, Retail Partner to find out more