Nov 26 2007

Black Friday sales data: what does it tell us about American consumers?

Holiday weekend retail sees big crowds, but no splurging – Nov. 25, 2007

Black Friday; a most interesting phenomenon of American culture. A day when consumer demand in retail product markets is at its strongest, the day after Thanksgiving when, still lightheaded from excess tryptophan and mashed potato intakes and an NFL overdose from the previous day, millions of Americans stumble full-bellied from their beds and flock to the malls and big box retail outlets of suburban America to give thanks to the gods of consumerism: Wal-mart, Target, JCPenny, Nordstroms, Macey’s… all the holy temples of our sacred religion open their golden gates to the hoards of consumption-crazed pilgrims, all hoping to pay tribute to their beloved deities with their almighty dollars.

Although deep discounts brought out much bigger crowds of holiday bargain hunters, a major retail trade group said Sunday that shoppers actually spent less money this year over the crucial Thanksgiving weekend.

The National Retail Foundation’s (NRF’s) 2007 Black Friday Weekend Survey said more than 147 million shoppers hit the stores over the Black Friday weekend, up 4.8 percent from last year.

What makes Black Friday an interesting economic phenomenon is that on the one day when everyone in the country expects demand to be highest, retailers across the country react not by raising their prices in response to the increase in demand; rather, by slashing prices, offering the biggest sales of the year to the turkey-stuffed throngs. As if the gods were granting mankind a heavenly gift, the consumers of America respond enthusiastically to the nationwide price cuts. But this year, in the face of a possible recession, there is concern among retailers that Americans might not be ready to express as high a level devotion to buying as in years past.

While the total number of shoppers is believed to have been larger than last year, early estimates indicate that consumers may not have spent as much money:

…the trade group said consumers, on average, spent an estimated $347.44 in total on Thursday, Friday, Saturday and Sunday, down 3.5 percent from the previous year.

Even as their assets, including real estate, have lost value recently due to a dangerously weak housing market, Americans seem relatively unfazed by the supposedly slowing economy. Perhaps there’s an explanation for the record number of shoppers. The housing downturn and weak dollar led retailers to fear a slower holiday shopping season, leading them to slash prices more than usual and offer “early bird specials” aimed at drawing timid shoppers to their stores. More sales and bigger bargains mean more business for retailers:

While many malls opened their doors to throngs of discount shoppers at midnight, several retailers, including J.C. Penney (Charts, Fortune 500) and Kohl’s (Charts, Fortune 500), kicked off Black Friday as early as 4 a.m. this year.

The NRF said the early openings paid off with 14.3 percent of consumers out shopping before 4 a.m. this year compared to 12.4 percent last year.

Midnight? 4 a.m.? That’s early… but apparently that’s when the biggest deals can be found. But don’t worry, if you didn’t get your shopping done on Black Friday, there’s always Cyber Monday:

The NRF estimates that one in 12 consumers, or 8.2 percent, has finished their holiday shopping. The group expects total holiday sales for the November-December period will rise 4 percent to $474.5 billion, its slowest growth rate in five years.

Meanwhile, online retailers are bracing for their kickoff to holiday shopping on Cyber Monday.

The NRF expects 72 million consumers will shop online from home or at work on Monday for after-Thanksgiving bargains.

Video games and consoles – includingNintendo’s (Charts) Wii, Sony (Charts)’s PlayStation 3 and the popular game Halo 3 – are expected to be the top online purchases on Monday followed by furniture and appliances,
consumer electronics and clothing.

A little turned off by the rampant consumerism of Black Friday and Cyber Monday? Good news, if you were like me, and chose to buy nothing on either day, you’re not alone either! Buy Nothing Day – Adbusters

Discussion Questions:

  1. Why do retailers slash prices on the day where demand for their product is highest, instead of raising them?
  2. What impact would a weak housing market have on demand for consumer goods like those people bought on Black Friday and Cyber Monday?
  3. Why do some stores open their doors at 4 am and even midnight on the day after Thanksgiving?
  4. Are American consumers absolutely out of their minds?

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

11 responses so far

11 Responses to “Black Friday sales data: what does it tell us about American consumers?”

  1. James Tsaoon 27 Nov 2007 at 12:08 pm

    Retailers slash their prices on black fridays where demand for products are at its peak to bring even greater demand. Knowing that they can spend less money on products, consumers have more incentive to come out and shop. As a result, the revenue earned from each product lowers, but the quantity of output increases to such an extent that the retailer earned more profits from price-cuts. Retailers such as J.C Penney's and Kohl's begin their sales at 4 a.m to lengthen the time span which consumers can shop to further increase sales

  2. James Tsaoon 27 Nov 2007 at 12:21 pm

    Retailers would choose to slash their price at the point where consumer demand is at its peak during a 'black friday' to increase its market sales. Knowing that they can get the same quantity and quality of products at a lower price, more consumers are willing to come out and shop. Consequently, retailers will gain greater profits because even though revenue per product is lower, total sales are greater to such an extent that profits are greater. Retailers such as Kohl's use this opportunity fully by opening its stores at 4 a.m to increase the time span which demand is greatest

  3. Angel Liuon 27 Nov 2007 at 4:29 pm

    Retailers are slashing prices and opening at 4 am because consumer demand is elastic, especially now before a possible recession. People are conserving their income so the only way that they will take out their hundred dollar bills is by lowering prices to attract buyers. I think the retailers and American consumers are behaving rationally. Sellers want to achieve more profits and consumers want cheap stuff.

  4. kevinyehon 28 Nov 2007 at 10:01 pm

    By cutting prices on a day that demand is going to be extremely high, firms cause those people who may have been wavering on the borderline of whether or not to shop to decide to go to the store. This increases demand even more, and because demand at this time is elastic, they will increase their total revenue by an increasing amount. The firms don't want to gain the most money out of each individual consumer, but out of the entire market as a whole. Thus, the price cuts actually increase their profits, as more people will come to buy teh products, especially in the wake of a recession

  5. MargaretLiuon 29 Nov 2007 at 2:20 pm

    Wait, I still don't understand why they would open at 4 am though.

    My friend in the US said that black friday was pretty much just like the oil price cuts where four people were stampeded to death. Not only were more employees hired for black friday, but policemen were finally given REAL JOBS. They literally had a SQUAD at Fry's electronic store in Cupertino, CA to control the crowds. It even got so out of hand at one point that my resource says you could've jumped up and "body surfed". Strange right? Maybe there isn't such a big culture difference between China and the States after all. We're all consumers and we "demand!"

  6. Jason Welkeron 30 Nov 2007 at 1:26 pm

    Margaret, Great comment, I think you're right about one thing; we're all crazy consumers, and if there's a deal to be had, we are even willing to risk life and limb to get it! I wonder how many people were hospitalized because of shopping injuries in the states last week!

  7. Helenon 03 Dec 2007 at 12:49 am

    Retailers slash their prices in order to attract a larger share of the crazy consumers on Black Friday. Taking advantage of the huge surge in consumer demand, if one retailer slashes its prices to attract more consumers, naturally, other retailers would follow if they don't want to lose their share in the benefits of that day. Similar to their price slashing, their store openings at 4:00 AM or even midnight is another strategy to attract to more consumers. Because almost every retailer slash their prices on Black Friday, some retailers recognize their need to differentiate themselves on that particular day, which is why they offered even bigger bargains during those insane hours of the day.

  8. Helenon 03 Dec 2007 at 12:51 am

    [The second part to my comment got cut off, so here it is.]

    A weak housing market means less income for consumers, and because the products on Black Friday and Cyber Monday are mostly normal goods, the demand for these products will decrease.

    Looking at Margaret's comment, I must say that Americans are on the verge of, if not completely in, a state of insanity. Why would they risk their lives for a sale? It may be understandable for households below the poverty level to take such desperate measures, but the others? I really don't understand why. Ironically, Americans, who are known to be the opposite of thrifty, are risking their lives on the day after Thanksgiving to save a little money on what they would normally buy.

  9. yunqimokon 15 Dec 2007 at 1:44 pm

    Contrary to what ordinary people think, tt isn't about selling products at the highest highest prices, but rather the quantity of products sold. If firms sold 3 items with profits of one thousand dollars each, i still isn't as profitable as selling mllions of items with five or ten or even one dollar profits. Furthermore, in a pretty competitive market, if one firm decides to slash prices, they all have to, otherwise consumers will flock only to that one firm.

  10. Alex Goldmanon 05 Jan 2008 at 5:37 pm

    America is notorious for its mass-consumer culture. Morgan Spurlock, the guy from "Supersize Me," is currently creating another movie titled "What Wouldn't Jesus Buy?" about American consumerism during Christmas. Thanksgiving, from a retailer's point of view is Christmas jr., and is a fantastic opportunity to make huge sales. Like Christmas sales, during Thanksgiving there are also price cuts so that the consumer has more relative spending power, which can lead them to buy more. Yet many people are just under the illusion they have more spending power – they have lost money in the weak housing market. I guess American consumers are insane.

  11. Dana Yeonon 09 Jan 2008 at 2:25 am

    As price tags are normally overpriced, it's not about what kind of people buy the products at what kind of price. The core of the issue lies in the analysis of what kind of products are bought by consumers the most. Thus, the stores' willingness to hold gigantic sales may be like a good bargain, but often times it's just a strategy. Furthermore, as consumers are highly elastic to products they desire to buy but cannot afford to, this kind of sale often leaves huge surplus for the shops. In another perspective, stores that may be unwilling to cut prices may just have to, as almost all consumers will flock to the other store that holds massive sales. Thus, shopping malls may be grouped as oligopolies: they are interdependent on each other.