Inside the Black Friday black box
How do retailers satisfy consumers’ thirst for Black Friday discounts, while keeping some margin for profit?
Last Thursday, in the dark of night, consumers gathered outside the doors of some of SA’s largest retailers. Hours later, countdowns filled the early-morning air as stores prepared to open their doors. And then — pandemonium: hundreds of customers scuffling and elbowing their way forward in an attempt to lay their hands on the hottest deals of the year. And with that, Black Friday arrived in SA.
Black Friday has grown into a popular annual retail event. But with the price reductions required to keep consumers happy, how do retailers keep profit margins intact?
It’s all in the pricing, say some retailers (others, like Woolworths, were reluctant to share their strategies).
"There is a variety of pricing strategies we use, depending on the type of product," says Edcon CEO Grant Pattison. "We work with the suppliers. [They] contribute something to the price, and we probably contribute half our margin … and then together we come up with a fixed price."
Pattison won’t disclose what the group — which includes Edgars, Jet and CNA — makes on the day. But he says last year’s Black Friday sales "were the largest single sales of the year. This year we expect it to be 20% bigger."
For most retailers, planning begins months ahead of the event — six, in the case of Shoprite. Because grocery items have a small profit margin, the retailer focuses on more profitable goods. Its deals include 50% discounts on "everyday items such as nappies, washing powder, toilet paper and milk — these are considered ‘deep discounts’", it says.
In its preparations, Pick n Pay works with suppliers "to secure more stock and make sure we’re able to invest in really special offers on popular lines", says marketing executive John Bradshaw.
It’s also a matter of careful stock selection, says veteran retail analyst Syd Vianello. "A lot of these guys take slow-moving stock and put [it] on Black Friday at discounted prices simply to get rid of it," he says.
Others work closely with suppliers to arrange specials. "They [get] a special line just for Black Friday," says Vianello. "So when they come to you offering you a 40% discount, the fact is that they are still making a pretty decent margin."
Not everyone’s a winner, though. "A lot of [retailers] tend to cut some of their prices to levels where they’re actually making margins that are incredibly thin or selling products at a particular negative margin," says Unum Capital trade analyst Lester Davids.
This year, the date of the event will also likely have helped retailers. Black Friday falls the day after the US Thanksgiving holiday (the fourth Thursday in November). In 2019, it put Black Friday "on the weekend of payday", says Pattison. "Some people had been paid their November month-end pay cheque and their 13th cheque."
It’s not all been plain sailing: Black Friday has taken flak on social media, where retailers have been criticised for anaemic discounts and manipulating prices.
"No-one would sell something for 80% off," Pattison counters. "The maximum we go, I think, is half-price. And to get to half-price is still to either sell at cost or at a very small margin.
"We would need the suppliers to help us as well. The supplier would have to reduce the price for us and then we would mark it off at 50%. There are also lots of two-for-one deals — and two-for-one is essentially 50% off."
Retailers have also been accused of underhand tactics. "Leading up to Black Friday, you see prices being pushed up," says Davids. "At the end of the day … it gives the perception that prices have been reduced by 50% where … in some cases it’s only a 20%, 25% or 15% reduction."
Online retailer Takealot has been accused on social media of such practices — a charge it strongly denies.
In terms of direct sales, the company calculates discounts using the supplier’s recommended retail price as its base – “not the most recent selling price, which is often already discounted”, it says.
On Takealot’s third-party, Marketplace platform, it is sellers who set the price of their products.