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Is a Black Friday boost in store for retailers?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

So which is it for you - Black Friday or Buy Nothing Day? Because yes, they are both ‘actual’ days in the consumer calendar.

It’s not just Brexit that’s dividing the nation, it seems our spending (and non-spending) habits could be as well. For Britain’s beleaguered retailers all hopes will be on shoppers indulging in their usual festive splurge. However, there could be bad news in store for them.

Footfall doesn’t lie

According to figures from the British Retail Consortium, over the four weeks from 30 September to 27 October, footfall fell by 2% on the previous year, making October the eleventh month of consecutive footfall decline.

Of course, we and the retailers won’t know until it’s all over whether shoppers have come up trumps, but while the British Retail Consortium says there are signs that consumers have been waiting for Black Friday and seasonal discounts before visiting the shops, it admits that its numbers do reflect an ongoing trend of declining footfall.

There’s no getting away from the fact that it has been a terrible year for retailers. In our very first Stock Watch Live back in January, I remember quoting figures from the Centre for Retail Research (CRR), which estimated that we would see the number of shops across the UK fall by 22% in 2018 alone.

And I have to admit it was met with incredulity. As a notorious ‘nation of shopkeepers’ surely British consumers would keep the retail flag flying? Unfortunately the CRR’s forecast has proven to be disappointingly accurate.

So after a year of retail failures, profit warnings and store closures, the final quarter or the ‘golden quarter’ as it’s known in retail circles, should be one ‘last push’ opportunity to get consumers spending - as it always has in the past. So all eyes will be on Black Friday, the day following Thanksgiving Day in the US, which has been regarded as the beginning of the country’s Christmas shopping since 1952.

Market research company Ipsos says Black Friday has been the busiest shopping day of the year in the US since 2005. As well all know, what starts in America usually ends on up British shores, and according to UK’s online retail association IMRG, the amount spent on UK online retail sites on Black Friday in 2017 totalled £1.39 billion. So hopes are understandably high this time around too.

However, it could be some time before we know whether the Black Friday boom trend has continued. While footfall figures, online data and sales from the major credit cards will be able to give retailers some indication of how successful Black Friday has been, they won’t know the actual effect on their bottom line until the new year.

For retailers, especially at a time of such low consumer confidence, opting out of Black Friday discounting is most probably not an option. Despite protestations about the validity of Black Friday promotions, few retailers - if any - will resist the urge to lure in customers with some sort of incentive to spend with them.

But there are dangers here. In investing we often talk about value traps, when stocks that appear to be selling at ‘bargain’ prices are actually not bargains at all, but duds. What these retailers will have to watch is the effect on margins. As we have seen from none-less than John Lewis, the fight to get customers spending can instead end up being a race to the bottom. Pile ‘em high, sell ‘em cheap may have worked for Jack Cohen and Tesco in the early days, but you still have to make money. John Lewis, a stalwart of the British retail scene and a bellwether of middle-class consumer sentiment, sent shockwaves through the sector when it posted a 1% rise in profits. Its famous ‘Never knowingly undersold’ stance has proven to be a very costly one.

Christmas could prove challenging

Unfortunately for the struggling retailers, low consumer confidence and concerns over Brexit are expected to inhibit big-ticket spending. Consumer analysis group GlobalData Retail estimates that growth within the food and grocery sector will slow to 2.5% this Christmas. It says that having seen a “less than stellar year” many clothing retailers will find the final quarter of 2018 offers up more of the same. And it highlights market leader Marks & Spencer as one that will find this Christmas especially challenging.

It says pure online retailers, such as ASOS and boohoo are likely to be the biggest winners this Christmas offering a potent mix of discounts, speed and convenience. Amazon remains its prime beneficiary as the dominant force in the online sector. And it expects online spending to be bolstered by Instagram’s shopping function, which launched this year, as well as Pinterest featuring direct links to retailers’ product pages.

So, have you decided where you stand on the spend/no spend divide? If you’re still undecided, don’t worry. Unlike with Brexit, there is a chance to vote again - with your wallet - on Monday. And if last year is anything to go by, Cyber Monday could prove to be even bigger than Black Friday.

Happy shopping - or not!

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