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Strategic Insights Black Friday

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Published November 15, 2022

Black Friday – it’s become part of the retail sector fabric in the UK

In the US, the day after Thanksgiving has been regarded as the beginning of the Christmas shopping season since the 1950s. But it was not until relatively recently – the 2000s– that it was officially designated the biggest shopping day of the year.
On this side of the Atlantic, Black Friday is no longer the one-day shopping frenzy that it was when Amazon, Asda and Argos first started popularising it a decade ago. It now lasts the best part of a week – a few days either side of the Friday in question. And in recent years, it has become inescapable.
In recent years, avid – even fanatical – bargain hunters have been known to camp out overnight to secure a place in the queue at their favourite shop. Retailers meanwhile offer special promotions both online and in shops to mark it. And they are increasingly reliant on the spikes in sales that it generates.
 
Source: Business Insider. Credit: Reuters/Luke MacGregor.
Source: Business Insider. Credit: Reuters/Luke MacGregor.

Muted – maybe… but by no means a washout

A few days after this year’s Black Friday, the dust is beginning to settle on it, as well as on its cousin, Cyber Monday. Commentators are now focused on trying to determine just how much the cost-of-living crisis has impacted sales this year. The picture is actually rather nuanced and there is little in the way of consensus. Admittedly, there were no scenes of people fighting over widescreen TVs or Cabbage Patch Dolls. And no department store staff were trampled to death (which appallingly happened in 2008). Nevertheless, many retailers have talked of “steady” trading. And the retail calamities predicted by the tabloid press did not come to pass. In fact, the dry and sunny weather and the World Cup match on Friday evening combined to drive up sales.
According to Barclaycard Payments, which processes £1 in every £3 spent on UK cards, transactions were up 3.2% on last year. Marc Pettican, CEO of Barclaycard Payments, indicated that despite the numerous economic headwinds, sales picked up and increased throughout the day. Lunchtime in particular saw a surge: a record number of transactions per second occurred between midday and 1 PM.
And yet… because of pressure on consumer spending, retailers were understandably very unsure about what the day would bring. Paradoxically, rising energy prices have actually boosted sales of energy-efficient products (such as cooking appliances and heat pump tumble dryers) at outlets such as Currys. Several experts have suggested that sales were even higher in the week leading up to Black Friday. “We have also seen an increase in transactions, with volumes up 3.46 percent week on week compared to the lead-up to Black Friday last year”, said Mark Pettican.
 

Consumer Confidence in the UK

Source: Focus Economics. Credit: GfK Consumer Confidence Index.
Source: Focus Economics. Credit: GfK Consumer Confidence Index.

The first non-Covid Black Friday in three years

The last two years have been mired in pandemic-related issues, such as supply chain bottlenecks and intermittent lockdowns, so it is difficult to see exactly how this year's figures compare. But footfall does seem to be up on last year. According to analysis firm Springboard, shopping centres (rather than smaller high streets) were the real Black Friday winners this year, with footfall up 4.6% on last year. So, much of the data suggests that Black Friday was a success, despite the challenging economic backdrop.
Transaction volumes appeared to be in line with what retailers were seeing at the same time this time last year. UK shops saw an increase in shopper numbers, although this was still 22.4% lower than the last pre-pandemic Black Friday in 2019.
Building society Nationwide recorded higher purchase numbers than the previous two years. According to Mark Nalder, Nationwide's director of payment strategy, spending was strong as consumers search for bargains ahead of the festive season. Black Friday, he suggested, will provide a much-needed boost for retailers, and spending is expected to remain robust throughout the following week.

What does this mean for investors?

Some investors and analysts laugh at the idea that Black Friday is any real indicator of how the final quarter of a given year will pan out. Indeed, many suggest that it only really causes short-term gains or losses. That said, many economists work on the assumption that spending drives economic activity and that higher Black Friday numbers are an indication of accelerated growth.
Many retailers in the US have been hard-hit this year: the likes of Abercrombie & Fitch, Gap, and Victoria’s Secret have posted revenue that is around 25% down on last year. UK retailers have fared no better: Halfords, Next and Marks & Spencer are down 44%, 29% and 47% respectively. So given that so many other earnings figures and profit margins are being squeezed by higher input prices and reduced consumer spending, Black Friday performance will be a good indicator of whether or not the situation is improving. Even if it can simply enhance these companies’ top line, it would be a huge boost.
Investment Quorum owns several funds with high allocations to consumer discretionary names – companies that manufacture products that people tend to cut back on in times of hardship. Lindsell Train UK Equity Fund, for example, has holdings in companies such as data analytics company Experian, alcoholic beverage company Diageo, and high-end luxury fashion house Burberry – all of which have had a turbulent year. By engaging in those Black Friday sales, the fund will hopefully be able to leverage improving consumer sentiment, enhancing investor sentiment in the process.

Could the worst be behind us?

A number of other retail sector companies have seen surges in their share prices in recent days. In fact, an overall 29% increase has made retail the best-performing sector since the current stock market revival got underway last month. Admittedly, it still ranks as one of the worst performing this year. But as the end of the year swings in to view and investors start eyeing up the possibility of a Santa Claus rally, many are starting to believe that the worst is now in the price. In other words, the market has priced in as much in the way of bad news as it can accommodate.
There are always, always unknown unknowns. War in Europe is the most significant of those unpredictable factors, but there are also question marks hanging over how the retail sector will cope with the distraction of non-stop football until Christmas – something it has never had to contend with before.
It is highly likely that retailers will focus on margins in a bid to spread their Black Friday promotions over a longer period (to more effectively manage logistics costs). So expect more spam in your inbox, but possibly the odd worthwhile bargain as well!