Black Friday, which occurs today, is an annual event where U.S. retailers have big sales to kick off the Christmas shopping season. But it doesn't make any sense to me from an economics perspective.
The question bugging me (which I don't have an answer to, but perhaps a reader does) is why, if the deals are so good on Black Friday, do stores not offer them on other days? Presumably, retail sales must be dismal leading up to Black Friday — why buy something the preceding Thursday when you know you can get a much better deal the next day? Stores, realizing this fact, should presumably offer their Black Friday bargains before Black Friday in order to get customers into their store. Yet this doesn't seem to happen.
Similarly, the economic principle of arbitrage suggests that prices shouldn't go up after Black Friday; if they did, people would scoop up bargains on Black Friday, then resell them the next day (on eBay, for example) for more than what they paid on Black Friday and less than the retail price. Since in theory everyone would buy the cheaper online product and not the more expensive retail product, stores would have to lower their prices to Black Friday levels to compete.
The only possible explanation I can think of to explain Black Friday — that both businesses' and consumers' valuation of products somehow changes for one day — seems completely unrealistic. Halloween candy goes on sale after Halloween, for example, since everyone values it less on November 1; there is a cost to stores for storing the product until the next Halloween, and consumers don't have as much use for small candies without trick-or-treaters coming by. But I don't think this explanation applies to Black Friday.
So why does Black Friday exist when economic theory says it shouldn't?
Friday, November 26
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Well, it is a day when consumers have been primed to go shop, which means it is a day when there are far more active purchasing consumers than is usual. Bigger risk/reward scenario. Though typically with supply and demand, prices would...
ReplyDeleteI don't know.
Wait, how is this different from boxing day?
ReplyDeleteI was wondering this myself a little. In many ways, it's not. I don't understand Boxing Day either. But Boxing Day makes more sense than Black Friday on a couple of fronts:
ReplyDelete- Boxing "Day" seems to have morphed into Boxing Week.
- There are some items that stores may want to get rid of after Christmas, as with Halloween candy on Nov. 1 (e.g. Christmas cards, Christmas CDs, Christmas sweaters)
How much of Boxing week sales is really on Christmas stuff? Not a lot, I think. Shoppers are conditioned to shop during Boxing week, and also to expect that items will be on sale. If stores don't put items on sale, shoppers will feel betrayed and go elsewhere. I doubt stores like NCIX do sales like this.
ReplyDeleteI know I'm a little late to the discussion, but I would say it makes sense for a few reasons:
ReplyDeleteIt's the day after Thanksgiving in the U.S. and you have a lot more people out buying (because they're off work). Stores are competing for that high volume of customers. It's absolutely worth it to "steal" customers away from your competitors with lower prices because, though the margin is lower, you're making up for it on margin. Prior to Black Friday, there isn't as much consumer demand. In many ways, Black Friday kicks off the Christmas shopping season in the States.
However, each year, Christmas sales get earlier and earlier, and while Black Friday is like the official start to Christmas shopping and Christmas sales, it's going on earlier, so you will find some sales prior to it.
There is also a cultural element, in fact, multiple. People may not be in "the mood" as much to Christmas shop before Thanksgiving (again, I'm talking about the US). But once that's over with, it's fair game; peole have clicked into Christmas mode.
Further, as Black Friday has become a day for shopping and for sales, people become accustomed to it, it's just what you do the day after Thanksgiving. And to this point, if they go into a store on Black Friday and it's not having a sale, they'll be quite disappointed, and it could decrease the likelihood of them coming back in the future. This seems like a self-reinforcing phenomenon, and may explain why Black Friday seems more prominent now than it did 20 years ago.
I don't think arbitrage really comes in to play here, because most people don't sell things they've bought (though many do, and I imagine many get deals on Black Friday only to list them online the next day). There is also still a resistance by many to shopping online, so they're not going to take advantage of such deals. Nonetheless, online shopping has been taking a hug chunk out of in-store retail sales for the past few years.
Black Friday might also be great for stores to move excess stock, especially if they've got new stock for Christmas arriving soon. Carrying stock for more than a few weeks or a month can be extremely costly to a retail store, getting as much out the door as possible is probably a good thing.
In many ways, this really is just a matter of competition and economies of scale, both tend to lower prices (I know it's also a matter of demand, which tends to increase prices, but that's outweighed by other factors).