Black Friday: Was It Successful?

Is America a unified society? How often do American citizens come together to celebrate national events?

Britons, for instance, declare their social solidarity by pinning poppies to their lapels on national Remembrance Day. And Canadians all stop and stare at their television sets on national Hockey Night.

We Americans likewise celebrate a variety of national holidays and sporting events. We all eat turkey on Thanksgiving and hot dogs on Independence Day. And we’ve recently added Super Bowl Sunday to New Year’s Eve as a national day of partying, with Halloween quickly emerging as a third such day as well.

Let’s Go Shopping!

But only in America do people enjoy a national day of activity dedicated to retail shopping!  We are referring, of course, to Black Friday. It’s the day after Thanksgiving, a time when stores open as early as 12:01 am to kick off the holiday season with astonishing price bargains.

The name Black Friday sounds a bit gloomy, but it actually reflects a cheerful event on every retailer’s calendar. Namely, on (or around) the day of Thanksgiving each year, retailers generally break out of the red – in other words, they stop losing money because of meager store traffic – and break into the black. In other words, the costs of running retail establishments are so high that stores generally lose money for the first eleven months of each year; they only start to earn profits during the massive influx of customer traffic throughout the holiday season.

Thus, if the holiday buying season is dismally slow, stores end up reporting terrible financial losses for the entire year. And because of today’s treacherous economic environment, retail professionals held their collective breaths and crossed their fingers last week, hoping that consumers would finally open their wallets and splurge a bit on Black Friday.

Volume vs. Money

So what actually happened on Black Friday? And then what happened on Cyber Monday, the day when online shoppers dash to their keyboards and log onto retail sites like Amazon after having visited their shopping malls over the weekend?

Well, the results were a bit mixed. On the one hand, foot traffic in both the real and virtual retail worlds was notably higher than last year. But the average amount spent by each customer was notably lower. Thus, even though total sales revenue (as measured by total dollars spent by all consumers combined) was modestly high than last year, the meager amount spent per consumer was a significant cause for concern.

So how should we interpret these results? Was the increase in foot traffic and the volume of retail activity more important than the amount of money that was spent by each customer? Or were the meager dollars that exchanged hands the more important, and worrisome, consideration?

These are interesting questions, aren’t they? In fact, they reflect critical considerations regarding business strategy. For instance, in the midst of a grinding recession, should a luxury retailer like Tiffany try to convince 4,060 customers to each purchase a $100 set of Mini Round Tag Earrings? Or are they better served by trying to convince a single customer to purchase a $406,000 diamond ring in a setting of pure platinum?

The View From Wall Street

Interestingly, Wall Street investors confront similar questions while assessing the health of the financial markets. We all keep close track of major stock market indices like the Dow Jones Industrial Average and the S&P 500, but we don’t necessarily take the time to understand why such indices rise and fall from day to day.

Fortunately, though, Wall Street analysts perform that task for us. Whenever a market index fluctuates in value, for instance, financial analysts compute the number of stocks within that index that rises or falls during that time. Whenever such a fluctuation is attributable to many stocks that change modestly in value, they say that the market’s rise is broadly based.  But whenever the fluctuation is attributable to a very small number of stocks that soar or sink in value, they say that the market’s rise is narrowly mixed.

So from an economic perspective, which is preferable: a broadly based increase or a narrowly based one? Well, either type of movement is capable of lifting the market, but most analysts tend to prefer broadly based increases in the values of indices. That’s because narrowly based increases are built on meager foundations of small numbers of stocks; when those individual stocks decline (as all stocks inevitably do), the entire market is at risk of collapse.

What is The Verdict?

So with this in mind, what would a Wall Street analyst say about our retail performance on Black Friday? Most would call it a modest but broadly based improvement over last year’s experience, and would consider it a hopeful sign that our economy is slowly on the mend.

Thus, although our retailers may pine for the halcyon days of 2006 when the hot holiday gift was an incredibly expensive Sony Playstation 3 (instead of 2009’s relatively inexpensive Zhu Zhu hamsters), they may be comforted by this indicator that the American economy is moving in a healthy direction.