Black Friday unprofitable for most retailers

The number of leading UK retailers that see Black Friday as an unprofitable and unsustainable promotion has doubled over the last 12 months – rising sharply from almost a third (32 per cent) in 2015 to almost two thirds (61 per cent) in 2016.

A new report from LCP Consulting, the Future of Retail, highlights that:
• Fewer retailers will go into the black on Black Friday
• Returns are up for a third of retailers – with five million returns expected following Black Friday
• Fear of failure focuses retailers – as next day deliveries projected to rise by one million parcels

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.

The LCP 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, LCP estimates:

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.

Stuart Higgins, Retail Partner at LCP Consulting said, “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.

“Retailers must also manage the processing of returns in a timely manner to credit the customer, and to 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.”

The LCP 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.

Stuart Higgins concluded, “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?”