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Margins under pressure as Black Friday discounting deepens

More UK retailers than ever before participated in Black Friday Sales this year in the face of ongoing tough trading.

Online dominated once again. Ecommerce sales were up 46% compared with last year on Black Friday itself, while footfall dropped 5.4% on 2017, Springboard reports.

Participation rates from retailers reached record levels and the discounts were deeper than previous years, research from sales aggregator LovetheSales.com found. A total of 72% more UK retailers took part in Black Friday this year than in 2017 and price cuts were deeper – an average discount of 37%, compared with 33% in 2017 and 30% in 2016.

Many retailers stretched discounts over a full week or more and some retailers that usually abstain from Black Friday discounting – including Jigsaw and Whistles – took part for the first time.

However, despite the sales boost Black Friday brings, many are concerned that what once was a prime trading month in the run up to Christmas is now dominated by discounts and lost margins.

“It’s sad when you see retailers discounting on prime selling days,” said retail veteran Andrew Jennings. “We’re giving margin away at a premium time for gift-giving, and you’re training your customers to shop when you’re discounting.”

Julian Dunkerton, co-founder of Superdry, agreed that deeper and increased discounting damages brand reputation: “It’s a foregone conclusion that the more you get involved in discounting, the less people are going to respect your full-price proposition. It’s the difference between short-term and long-term strategy. If you want to build something and think about the long-term profitability of your brand, then you need to stay strong.”

However, the CEO of one high street womenswear retailer that offered Black Friday discounts for the fifth year in a row last week said customers’ expectations have changed: “It’s a beast but if that’s what the customer wants, we need to meet that. We’re going to have to continue it next year. It’s changed the nature of the month. December is now primarily a Sale trading month, not a prime month.”

The managing director of another high street multiple said he increased selected Black Friday discounts by 10% this year, but admitted trading was “underwhelming”.

However, he agreed that retailers now need to take part in the event to drive footfall and traffic: “It’s been a tough trading year and Black Friday can be a vehicle to offer relief and to get rid of stock before the new year. One’s got to remember that discount marketing does drive traffic into store. I think you’ve got to do it to bring people in.”

Retail analyst Richard Hyman said that although discounting results in “brand dilution”, retailers are facing increasing pressure from stakeholders to keep up with competitors and annual like-for-like sales: “I know of a few retailers where the leadership team has not wanted to do Black Friday but stakeholders have forced their hand from fear. If you did Black Friday last year, it’s difficult to persuade your stakeholders that it’s better to go cold turkey and not do it this year.”

The chairman of one multichannel retailer agreed that it can be difficult to wean off the discounting drug: “If you don’t do it then you don’t have to beat it. By taking part you’re competing with yourself each year and training your customers to expect it. None of us want it. Some people are being tactical and offering different incentives, but I don’t see how blanket offers help anyone.”

 

 

Readers' comments (3)

  • The Womenswear CEO quoted here is talking complete rubbish. They do not 'have' to do anything if they don't want to. Is this company filled with fear instead of talent?

    The consumer expectations aren't the problem, it is the people running and within the businesses. Blaming the consumer is deflecting the issue of where the problem really lies and that is at boardroom level. To say that December is primarily a Sale month is ridiculous. Can this person be locked in a cupboard, it will certainly save the brand a few quid.

    Dunkerton's comments are much nearer the mark and worth respect.

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  • darren hoggett

    A depressing, if predictable read. Does anyone actually want to earn any money or has retail resorted to charity status?

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  • Needed a couple of new parts for my car and saved £175.00 by buying last week. Would have bought them anyway. Crazy practice giving away margin with Christmas around the corner and customers happy to pay.

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