Black Friday: Good for business but a headache for supply chain

While you have been busy planning to consume turkey, watch football games and visit with family this Thursday, American businesses large and small have been busy plotting how to get you inside their stores the next morning and on their websites in the days that follow.

Black Friday takes place the Friday after Thanksgiving and traditionally signals the beginning of the holiday shopping season.

You might be an expert at navigating the sales, promotions and big-ticket-item specials that will be offered, but do you know about Black Friday’s origins and the importance it plays in the U.S. economy? Or the recently invented retail event that has surpassed it?

To gain a better understanding of the infamous shopping day, ASU Now turned to Dale Rogers, a professor of logistics and supply chain management at the W. P. Carey School of Business.

Dale Rogers

Question: Please tell us the origins of Black Friday, how it got its name, and how it became the biggest shopping day of the year.

Answer: For many retailers, the day after Thanksgiving was the day that they became profitable for the year. Over the last 20 years, retailers developed more and more schemes to bring shoppers in early on Black Friday. While this was happening to some extent during the 1990s, it accelerated during the mid-2000s and became an event for family members that perhaps had celebrated Thanksgiving the day before. It became an event to get up at 3 a.m., 4 a.m., 5 a.m. and head to the mall for the deals that would typically expire before noon.

We are seeing event-driven sales make a big impact for retailers and manufacturers who have had difficulty cutting through all the social media and advertising noise to get the word out about their product. The same things work for retailers around the world. The largest shopping day in the world occurred last week on Nov. 11 in China. Nov. 11 in China is “Singles Day,” (the date) 11/11 is all the numeral one or singles. Singles day is only 6 years old and was invented by Alibaba. More product moved that day than any other day in retail history.

If you think about an iPhone release, Apple uses a product event to build excitement about the product.

Q: What are the incentives for retailers to give such deep discounts on Black Friday?

A: The incentive is similar to any promotion. It gets people in the store or online to shop, and it moves inventory. The 21st-century consumer responds to events. While it is better for supply chain managers to level demand throughout the year, sales are dramatically increased by holding an event. Plus, if the competition is having Black Friday sales, other retailers really have no choice but to follow suit.

Q: In recent years, Black Friday has become more than just the biggest shopping day of the year; economists have been using it as an indicator of the upcoming year. Is there much of a track record to predict this accurately?

A: It is a good indicator of whether or not the fourth quarter of the year will be a good one. For most retailers, the fourth quarter is the highest revenue period and so important to analysts and investors as an indicator of the track a retailer is on. While it is not perfectly predictive of the future, it does give observers a picture of what is likely to happen in the near-term for that retailer. It is another reason that retailers have to participate in Black Friday sales.

Q: In the last decade, Black Friday has spawned new retail holidays such as Small Business Saturday/Sunday and Cyber Monday. Are these spinoffs having the same kind of impact as Black Friday?

A: As I mentioned, Singles Day is actually larger than Black Friday and Cyber Monday combined. Cyber Monday became an event because in the late 1990s through the 2000s. Shoppers usually had much better internet connectivity at their office when they went back to work on the Monday after the Thanksgiving holiday.

Small Business Saturday is a program to push against Black Friday and Cyber Monday. Black Friday and Cyber Monday have generally been a negative for small retailers. Small Business Saturday is not having as large of an impact as Black Friday and Cyber Monday, but it is an important effort for small businesses, particularly in small towns in the suburbs. Small Business Saturday has been great for local retailers that need Christmas sales to make their year profitable.

Q: Do you see any downside to these retail holidays?

A: It is much easier to manage the flow of inventory through a supply chain if demand is smooth and level and not lumpy. These retail holidays exacerbate demand peaks and make it difficult to manage the supply chain. Also, some consumers postpone purchases because they know there will be retail holiday discounts.

But, they have been a hugely successful strategy for retailers and brand owners.