The Deals are Real, but the Predictions are Grey

April 12, 2015

By: Anna D’Angela

Black Friday – a day marked by tremendous savings, frenzied purchasing and even rioting. But it’s not just for shopaholics and people looking for a deal. Analysts typically use the day to gauge a retailer’s success during the holiday shopping season. And because a retailer’s profitability is often dependent on their performance during the holiday season, Black Friday has traditionally been used as an indicator of a retailer’s overall success each fiscal year. Some however have begun to suggest that these predictions may not be truly useful to investors.

Black Friday is the Friday following Thanksgiving Day in the United States of America. On this day, retailers will offer special promotions and open early in attempts to drive customers to their stores. Many believe the name refers to the huge volume of sales that allow retailers to move “in to the black” after being “in the red” for much of the year.

The sales numbers for Black Friday are usually staggering. In 2013, approximately 141 million customers shopped during Black Friday, spending a total of $57.4 billion, with online sales reaching $1.2 billion. But, data for this year so far is showing mixed results. Online sales are growing (Wal-Mart had its second highest online sales day ever and an IBM Survey found that online sales increased by 9.48%), but estimates for total shoppers are down to approximately 133.7 million, less than the expected 141 million for the day. Yet even with the decline, the National Retail Federation, the industry’s trade association, expects total holiday sales through December to increase by 4.1%.

As a result of these inconsistencies, more people are beginning to suggest that Black Friday sales aren’t necessarily as good an indicator as originally thought. Data shows that the relationship is temperamental – sometimes the prediction is on point and sometimes it isn’t. For example, in 2004 Black Friday sales were weak while holiday sales were strong; in 2008, the opposite occurred. Furthermore, with retailers beginning to offer the same bargain prices much earlier in the week and shoppers moving online, sales are being spread out over a longer period, which may contribute to the weakening trend. As a result, analysts are now seeking out alternative measures to make predictions. Two options include Gallup’s year-over-year estimates of consumer spending and retail hiring trends leading up to the holiday season. Using previous year’s data, both methods seem to track well with holiday sales over a 20-year period.

So, when analyzing the success of Black Friday 2014, remember that while the deals are real, the predictions may in fact be much more grey.

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