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Retail industry

Black Friday: Tense times ahead for U.S. retail

U.S. retail is struggling. As Black Friday kicks off the holiday shopping season, many stores are hoping harder than they'd like to that consumers will be in a spending mood.

Black Friday is the most-hyped day of U.S. retail sales all year, but even with its hype and fanfare, it  may not be enough to snap the retailer sector out of its crisis.

Black Friday – so named because its sales prompt the metaphorical use of black ink in accounting ledgers to indicate profitability – is widely regarded as the beginning of the holiday shopping season. Many retailers make a stunt of it, offering flashy, big-ticket items at steep discounts to attract attention.

“It’s more of a trap to catch consumers,” said Thomson Reuters Director of Consumer Research Jharonne Martis. “The consumer has to feel that the discount that they are being offered is timely and will not be offered at any other time. That’s not easy because with online shopping, you can easily track an item and monitor its price, or compare prices at different sellers. So, what retailers are really trying to do is catch the consumer’s attention and get them to do some impulse shopping and perhaps buy a complementary item at full price. That’s their hope.”

A going-out-of-business sign hangs in front of a Linens 'N Things store that is closing in Paramus, New Jersey. REUTERS/Mike Segar
A going-out-of-business sign hangs in front of a Linens ‘N Things store that is closing in Paramus, New Jersey. REUTERS/Mike Segar

The 2017 Retail Crisis

In nearly every corner of the market, U.S. retailers are struggling mightily. As consumers spend more time and money shopping online and wait to open their pocketbooks until there are deep discounts and dramatic sales, retailers have floundered. This year alone, for example, venerable department store chain Sears announced over 100 store closures; Payless ShoeSource, Wet Seal and Sports Authority, among others, have declared bankruptcy; and even newer, more trendy companies like Lululemon have had difficulty meeting sales targets and pleasing shareholders.

Back to Black?

So, will Black Friday do what it’s supposed to do – put retailers back in the black, so to speak? Probably not on its own, although the eight weeks of shopping it kicks off might yield high-enough returns for some companies.

Overall, consumer spending on Black Friday and throughout the holiday season is likely to be modest. The Thomson Reuters Same Store Sales Index is looking at a 1.6 percent growth estimate for the final quarter of 2017. While that estimate is twice as big as last year’s 0.8 percent result, it’s still below the 3 percent healthy mark, suggesting shoppers aren’t comfortable going all-out this holiday season.

 

Advertising for Black Friday sales are on display at a Target store in Chicago. REUTERS/Jim Young
Advertising for Black Friday sales are on display at a Target store in Chicago. Discount retailers like Target are under less pressure than department stores, like Lord & Taylor and Macy’s, to offer steep discounts and profit-denting sales. REUTERS/Jim Young

Some areas of the retail industry are doing better than others:

  • Department stores, which have struggled for years, are looking at ending 2017 with a 2 percent decline in same-store sales. They’re the retailers who are most likely to need robust holiday sales to pump up their fourth-quarter earnings and thus elevate their yearly figures. “When you look at all of the sectors in the retail space, they’re the ones that are consistently underperforming,” Martis said. “For them, this can make or break their full-year financials.”
  • Meanwhile, discount retailers have put fewer items on sale, and have made those sales less dramatic. That’s translated to more money in their pockets. “The value stores are offering fewer sales on fewer items, and so they’re just smashing expectations,” Martis said. “Contrast their approach to that of department stores and you can see what’s working and what’s not as successful.”
  • Footwear, Apparel, and Health and Wellness have seen small improvements over the course of the year, while Sporting Goods has declined. A significant bright spot emerges where all those categories intersect: “Athleisure is still very strong, and it’s just beginning to grow globally,” Martis said. “The Olympics last year put it in a worldwide scale, so while everybody in the U.S. might already have all of that they need, it’s just taking off in other parts of the world.”

On the whole, most retailers will place discounts on around 30 percent of their merchandise, and the average discount will be just north of 37 percent.

“If you’re not getting a discount of 40 percent or above, it’s really not a Black Friday deal,” Martis said.


Learn more

For more in-depth insight on the current state of U.S. retail and what Black Friday may mean for stores, read “U.S. retailers pin hopes on Black Friday.” Thomson Reuters Director of Consumer Research Jharonne Martis created the report in collaboration with StyleSage using data from Eikon.

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