Black Friday 2014

It’s now less than two weeks to Thanksgiving and, right after that, Black Friday. With the current lack of confidence in the economic recovery many financial commentators and most of the media are starting to build up speculation about the annual retail frenzy, usually through making the claim that it’s a bellwether of how the critical holiday shopping season will turn out. Good seasonal sales figures will offer a significant boost to many US businesses, and in turn that will affect share prices and help shape the market as a whole for next year.
The big question is, how much does Black Friday actually mean for pre-Christmas retail spending? The conventional wisdom is that it’s a key measure, and higher spending on that day means good figures can be expected when it’s all tallied up in early January. Many analysts think that idea is media-created hype though. It’s hard to find any correlation between Black Friday sales figures and performance for the season as a whole, because the data points are widely scattered. To the extent any association can be drawn it’s pretty weak – and it suggests that a better Black Friday tends to mean a worse retail season.
The reasons for the rise of Black Friday itself are simple. Unofficially it’s the start of the Christmas season, and for many employees it’s also a holiday. That means a lot of people are going to grab the chance to get an early start in the annual gift-buying extravaganza. Over the decades – it seems to have been a significant shopping day since at least 1961 – it’s built up momentum as stores compete with each other to be the one customers line up in front of. However looked at rationally there’s no reason to expect that one day to make a real difference to the entire season.
The fact is that most people have a pretty fixed budget for Christmas shopping, and whether they spend it the last weekend in November or the last weekend before Christmas doesn’t matter much. In reality it’s not quite that simple. Lower prices and a fixed budget could mean more gifts being bought, and while that won’t affect retailers’ profits much (and any influence is likely to be a negative one) it could help the companies who make those gifts. These effects probably balance out though. Overall, people are going to spend what they planned to spend.
There’s also a possible – and rational – explanation for that weak link between a good Black Friday and a bad December. Lining up for post-Thanksgiving bargains takes some effort, and people might be more willing to make that effort if they’re feeling financial pressure and want to stretch a smaller budget as far as possible. In other words strong sales at bargain prices could indicate that consumers want to spend less overall.
Black Friday is now a regular fixture of American culture, and since 2005 it’s had the highest single-day retail takings every year, but despite the media hype and popular belief it doesn’t really say anything useful about sales figures for the rest of the year. It can affect investor confidence but that’s just the fickleness of the market at work.