The Phenomenon
The Black Friday phenomenon was initially imported from the U.S in the early 2,000’s which has now made its way through to the U.K markets as well. Due to some poor sales performance retailers who were initially skeptical about participating in the Black Friday event have now given in to boost sales. According to research conducted by PWC, it was found that over three fourth retailers have now started participating in the event hoping that it will kick-start the Christmas shopping earlier.
The key question now is that is the phenomenon of Black Friday now starting to show signs of a slow down? Some retailers this year decided to opt out of the event and instead invest in year-round lower prices.
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Level of Interest in Black Friday
The above table shows the importance of the Black Friday phenomenon based on age groups. It can be noticed that it has a greater effect on the younger population than the older. As you move up age brackets the interest seems to decrease. It is highest is among the 18-24 category and grabs the attention of consumers under the age of 45 who are more likely to be interested in making a purchase. Targeting the older demographics may not be successful with over three fourths of over 55’s either not keen or avoiding the phenomenon altogether.
Where in the UK is Black Friday most popular?
Northern Ireland is where Black Friday has had the most effect followed by London where over 55% of people have been interested. Whereas over 60% of the people haven’t been interested in the event in the East of England.
So, from the people that are interested in spending during the Black Friday Sale how much do people intend on spending? Comparing figures from 2017 to 2018 generally the average spending has remained the same at GBP 234. Surprisingly, the big spenders here are men who are willing to spend GBP 60 more than women (per person). This might be because in comparison to women who might shop all year-round men wait for the Black Friday sale to make their larger purchases. As women have already made their purchases previously, they don’t intend on spending more. So, while more stores have participated in this year’s Black Friday event the average spending has not really increased. What does that tell us about the significance of the Black Friday sale? Is the importance subsiding? Could this be because they are just trying to curb their spending as the 18-24 age group is most interested in spending during Black Friday and often this category is more budget conscious, or are they concerned due to Brexit implications.
What are people looking for during Black Friday and for whom?
Black Friday, when launched was aimed to boost the sales of electricals, is it still boosting electricals or has that changed? This year the interest in adult clothing has increased significantly with over double the number of consumers saying that they will look for fashion bargains over Black Friday.
Followed by clothing is stocking fillers, toys, health and beauty, homewares and food and drink. Looking at the below it can be analysed that Black Friday is more a ‘self-gifting’ shopping period than the traditional Christmas shopping which is more about ‘practical gifting’ where food and drinks, children’s clothing etc. is prioritized more.
Black Friday takes place on November 20th, prior to the Christmas holidays. Initially retailers have resisted discounting their products prior to a full price Christmas shopping season that usually took place from early December but that seems to have changed in recent times.
Crowding
Over the years the shopping experience has evolved from just in-store to online channels such as websites on laptop/desktops and mobile apps. In the UK capital, streets were crowded with people looking to benefit from the bargains. Approximately 69% of the purchases was made through online channels with only 26% made in-store. It is likely that the in-store purchases will be made by people in the younger age bracket than the 35-44-year olds with families who have commitments at home. So, who is really spending on the high street stores? It could be a mix of the young and old with the highest proportions of in-store spending by people under 25 or over 55.
Black Friday Shopping Medium’s
The Implications of Black Friday
To be able to understand the implications of Black Friday we will use the five performance objectives to evaluate. The four objectives that apply in this scenario are speed, quality, dependability and cost.
Speed
During the Black Friday phenomenon, the entire supply chain of operations management is affected. Most companies participating find it difficult to keep up the demand and meeting customer needs. Often companies are falling behind on their logistics operations. With regards to instore retailers it could be the stock they have available which is not adequate. For an online retailer, such as Amazon it could be the ability to maintain the right stock levels and prepare the orders for delivery and getting them to customers as per the promised timeline.
A lot of the Black Friday sale is now done online, which has its own set of problems that come with it. For example, John Lewis said that its website was facing difficulties handling the number of visitors looking for deals. The same was the case with Tesco and Curry’s who met with shocking demand during that period.
To meet the demand of consumers many retailers start offering deals online from midnight to maximise shopping hours. This often-increased traffic to their website and gained momentum. This unexpected demand often lead to a slightly substandard experience for consumers as many were unable to access the website. But how does Black Friday promotions assist retailers. All it does is bring forward the Christmas season shopping, reducing consumer motivation to pay full price again.
Retailers such as Amazon, River Island, Currys PC World, and Debenhams have admitted that Black Friday has led to some disruption in deliveries. Often for firms its rather difficult to predict the demand accurately and are often then playing catch-up. The demand created then often leads to a major backlog of deliveries that continue to affect the Christmas period as well. Amazon has found it difficult to fulfill their Next Day delivery promise as well due to the increase volume of orders. Other retailers such as Ao.com had stopped its next day delivery service due to “increased demand over the weekend”. In addition to this, stores such as Currys/PC World, Argos, Shop Direct, Littlewoods, among others, also extended delivery periods. This also creates a backlog of deliveries affecting the Christmas period as well.
Delays are not just caused by retailers but also the logistics operators/delivery service operators are also overwhelmed during that period. In comparison to retailers it is all that more difficult for logistics operators to up their game as it would require a much larger investment into improving the infrastructure and investment into additional resources to cope with demand. Operators would require more real estate to store all the packages, more manpower, transportation resources etc which is not necessarily worth the investment for only a short period of excess demand in the year. There are hundreds of retailers but not as many logistics providers and thus the burden of the Black Friday sale is greater on logistics firms. Even if the retailer is able to get the packages out on time it does mean the packages will be delivered on time as logistics operators would have to also up the ante to cope with the increased demand.
Quality
When we look at the Black Friday phenomenon, we can evaluate quality based on customer service as well. The Black Friday event is often overwhelming for retailers to cope with, especially in-store. Long queues, waiting periods, delays, lack of customer attention are all aspects that affect customer experience. It becomes very easy for customers to then have a negative experience leading to poor brand image in the eyes of the customer which affects repeat business for the retailer.
Dependability
One of the key issues the online retailers face is an overwhelming number of visitors on websites, through mobile apps which often creates technical difficulties for retailers. Often the reason for this is that most websites don’t have the required infrastructure to handle the increased traffic. Companies such as JD Sports, Debenhams and Game have been among the few affected. Many retailers have not upgraded their infrastructure to cope with the increased demand. This has not been the case only in 2018 but since 2016. What then happens is that customers get frustrated and move on to another website to empty their wallets leading to a loss of potential revenue for companies such as JD Sports, Debenhams and Game.
Cost
One of the key aspects affecting retailers during Black Friday is the aspect of cost. As most products are on sale during those days’ customers are inclined to buy several item’s they like however intend only on keeping a few that are most suitable. This often leads to a lot of returns leading to cost for retailers to be borne. According to Vicky Broch, director of data innovation at Rebound. “unwanted items will cost UK retailers over GBP 362m over the Black Friday weekend alone”. Returns rate is affected most in clothing with around 50% and about 5-10% for electronics. The concern with electronics is that once they are opened, they cannot be sold as new.
The consumer usually does not pay anything as most retailers have provided incentives whereby the cost of returns is borne by the retailer. If a consumer has a poor experience with their returns, then there is a high chance they will not shop from the same retailer again.
To try and tackle this retailer’s such as Asos have implemented strategies to minimize returns with the implementation of the “fit assistant” that combines purchase history along with height and weight to suggest the correct fit. Another strategy is “Boris - buy online and return in store”. This really affects retailers that cannot afford additional investment in logistics.
When we evaluate the above four objectives based on the findings mentioned it can be analyzed that by participating in the Black Friday phenomenon retailers are not better off. If at all it manages to put them in a worse off situation. With Christmas just around the corner by participating in Black Friday retailers are destroying their margins along with the possibility of closing the year on a high and hitting sales targets. Heavily discounting items prior to the Christmas season at a time when disposable income is increasing by 4.4% may not be a smart move. It also puts off the customer from paying full price for the same product in the future.
The investment into coping with the Black Friday event along with the cost of returns when prices are already heavily discounted leaves very minimal profit margins. In the case of clothing and apparel this could still be acceptable but with more expensive items such as electronics returns could hit retailers’ profits rather heavily.
To top it off the increased demand often leads to a lower level of customer attention and thus satisfaction, because of this customer’s will end up spending their money at on competing products and services affecting the retailers brand image.
All in all, there are no tradeoffs for any retailer here. There are only tradeoffs when there is some benefit in it for the retailer but in this scenario the retailer is only decreasing their profit margins and brand image.
Supply Chain Management for Firms during Black Friday
The key question is What is supply chain management (SCM)?
It is the management of the supply chain activities beginning from the sourcing of the raw materials to create any product/or service until it reaches the consumer. It is a process created to ensure that conscious efforts are made to develop most effective and efficient ways to run the process. This covers everything from the development of a product, productions, transportations and logistics as well as the IT needed to co-ordinate these activities until it reaches its destination.
Supply chain is not limited to one organization but is the combined effort of multiple organizations to ensure that the product/service reaches the customer.
One of the key areas of operations management that most firms are affected during Black Friday is inventory management. Why do we need inventory management for smooth operations? Earlier Black Friday was just a day, which is now an entire weekend. This means that there is increased pressure on retailers to satisfy the demand of consumers. Often firms get this part of the process wrong. Too high an inventory often leads to wastage of storage space, deterioration of goods over time, ties up working capital etc. For this reason, it became increasingly important for retailers to have the right amount of inventory to run an efficient operation.
What really assists here is that the digital and physical operations of the supply chain must be integrated and seamless. Planning for such an event cannot just be done in months. Retailers needs to plan 12-15 months in advance to cope with the event. Often firms such as Debenhams, Marks & Spencer, JD Sports, among others have taken it rather lightly and faced the consequences. This could lead to loss of revenue and the closure of several outlets like Debenhams is facing now as they were not able to capitalize during a peak season. There are several aspects to planning for such an event from forecasting the demand, contracts with multiple logistics providers, freight carriers, inventory planning and shipping.
One thing to ensure is having the right inventory and avoiding a stock out at a time consumer’s are looking to spend. Stock-outs means that the consumer will end up spending their money at another store. This has often proven difficult for retailers as they not try to balance inventory within stores and online. Retailers are now increasing availability online and also offering lower prices as this allows them to spend less on logistics by distributing product within multiple stores and selling online. By having more product in one place it allows for efficient use of resources and greater control. This also helps curb costs as less of shop space is used to stock goods and less manpower is required to manage the inventory in store.
What can a retailer do to ensure that it is not losing out on revenue due to IT issues and how it can be used to an advantage?
When retailers plan for such an event well in advance it allows them to test all the tech to make sure that all the functionality of the apps and website is functioning properly. About 70% purchases are made online. If there are problems with the websites and apps a major chunk of revenue can be lost. Customers are in a hurry to make their purchases during this period so if the tech isn’t working customers are not looking to wait, they will move on to a competing product.
Many retailers are still heavily reliant on traditional systems and processes to plan their omni channel supply chains. This is still driven by the traditional spreadsheet-based plans, which are not appropriate to manage the supply chain for large retailers during such an event. The right operations management and supply chain programs need to be implemented to allow a smoother functioning of operations.
Retailers could also implement an omni channel planning platform. It helps improve visibility, understand demand and allocate inventory accordingly to the desired locations thereby reducing shipments and cross transfers. This would help retailers improve efficiency and decrease costs. Retailers unable to do this suffer and struggle to meet consumer demand, while those who incorporate this will be able to boost sales, margins and decrease inventory costs.
Transportation and logistics contracts
Often retailers use the same courier and delivery service providers as they do around the year. The problem is that during the rest of the year these providers can fulfill the tasks but may not be able to cope the burden of the Black Friday weekend. Retailers need to evaluate their contracts and assess alternative that they are certain can deliver. Transportation and logistics make up for a very large percentage of the supply chain costs and it is vital that money is well spent and efficiently. If the main provider fails, the alternatives could be used to deliver on the promise to consumers.
The Future
The penultimate step in continuous improvement is an evaluation. This means that retailers should look to go through all the problems that popped u, understanding the reasons for it and preparing a solution to ensure that this would not occur in the future and most importantly putting it into practice. It is imperative to prepare a very structured analysis of the overall performance during Black Friday. Questions such as: were our forecasts correct? Was out supply chain in order? Any issues with sourcing, manufacturing and transporting goods? Was the inventory managed well? Etc. At the same time its important to compare the answers to these questions with how competitors fared. There is a good chance someone has done something better and the idea is to implement that within the operations management strategy for future. This is not really a complicated task and helps with not just Black Friday, but it also improves the process generally and provides the capability to handle such future events easily. It is not about understanding the problem but coming up with solutions and implementing it is what makes the difference.
References
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