Economy

Black Friday retailing is an art — and here's how it works

The art of creating a 4 a.m. shopping frenzy is a complex endeavor on par with creating the perfect Thanksgiving feast. Selecting the items to put on sale and pricing them right is the key to success.

This year, the recipe that retailers concoct is more crucial than ever.

Shoppers are hesitant to buy, and stores have been early with heavy discounts. That means there will probably be even bigger discounts this weekend as retailers try to live up to Black Friday's reputation as a bargain bonanza.

But some are beginning to question how long the super-discounting can last. Independent retailers are already resisting the practice, and some predict that larger chains will be next.

"Friday you will see really good deals," predicted Marshal Cohen, a retail analyst with the NPD Group. "But it's going to be on limited supply. You're not going to see the store-wide sales like you did last year. The economy is a little bit better [than last year] and the fact is that retailers have inventories under control. Last year, it wasn't a full recession until October, and by then it was too late."

As you hit the stores this weekend, it will help to think like a retailer. And it will help to understand the what, the how and the why behind the sales you are seeing.

The what

Most retailers shy away from talking about how they choose the items they put on sale. For Black Friday, most select their most steeply discounted items a year or more in advance.

They must negotiate deals with manufacturers that can generate the right quantity for the right price. It takes time to make those $3 home appliances (Target) and $59 Tom Tom GPS units (Walmart).

Because they are committing to a product so early, most chains stick with items that were hot buys the year before for adults, Cohen said. For children, they go with classics, especially for toys.

Target and Toys R Us, for instance, have been advertising popular board games for $5 or less already this month.

"We all know Barbie is going to be in the top 10 list," he said. "We know that Hot Wheels are going to be on the top 10 list. We know video games are going to be on the top 10 list. It's not that hard to predict what's going to be a 'wow' item."

Retailers chose the items that appeared in their Thanksgiving weekend sales circulars weeks in advance, because those must be printed early. Recently, many have been advertising their Black Friday deals via Web sites and e-mail newsletters early to help generate interest.

The Internet has allowed flexibility for last-minute changes, said Dan de Grandpre, editor of www.dealnews.com , a Web site that tracks bargains. Many retailers will now add sale items as they get closer to Black Friday.

"Last year, we saw a lot of items [advertised] online as opposed to in print because then they can add them later."

The how

Retailers strike deals with manufacturers to create products for Black Friday at low prices. The new models generally have fewer features or are lower in quality.

"New models pop up on Black Friday for the first time ever," de Grandpre said. "You've never seen this model of Samsung TV. It's either a doorbuster or definitely it's in the Black Friday ad."

For instance, flat screen TVs that are on sale on Black Friday will typically have a lower resolution and might have one port for external devices instead of the standard three or four, he said.

This year there are signs that manufacturers are feeling a squeeze -- and that will benefit the consumer

"Typically in previous years, you'd see [the special cheaper models] targeted to one specific store," de Grandpre said. "This year, Samsung introduced six different TVs and they have them for everybody. All of the sudden there's all this room for price competition."

There are a few deals each year on which the retailer may lose money, Cohen said. The deals on which the retailer is actually losing money are easy to spot, de Grandpre added. "Those are the ones where it's limit three per store."

The why

Of course, the whole idea behind the super-discounted items is to get people through the door, and that alone is going to be worth a lot this year. Still, the discounting frenzy that has enveloped the retail industry over the past several years has had ramifications.

For small stores, it's tough to keep up, especially when big guns like Walmart and Amazon get into pricing wars.

Nancy Olson said her Quail Ridge Books & Music in Raleigh,N.C., has been offering more deals this year, selecting different areas of the store for a 20-percent-off sale each month. In October, sales of boxed cards tripled as a result.

For December, books on tape are on sale. Pricing things competitively helps refresh inventory quickly.

"We agonize over it," she said. "We're trying to pick out things that for one are very expensive, and those books on tape are. We're turning over the inventory even though it's a 20 percent sale. Our margins are good enough that we make a little bit of money."

Still, it is possible to discount too far. In general she discounts up to about 30 percent and then stops for the sake of her profit margin.

In July, when the last Harry Potter book was released, Olson matched the 40 percent discount of the big chains -- which she regrets.

"We sold thousands of them," she said. "We didn't make any money."

As the economy climbs out of this recession, the days of everything on sale at 50 percent, 60 percent or 70 percent off may not last.

"The smartest shopper is the shopper who only buys those really great deals," Cohen said. "But 97 percent of consumers do not have the knowledge or the discipline to only buy those discounted items."

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