Black Friday is underway. As I write this, millions of shoppers nationwide are stalking the best deals at stores. Outlet stores opened last night; Kohl’s opened this morning at 4:00 AM. WalMart is open 24/7 in response to last year’s stampede death of an employee, and customer injuries. Old Navy opened on Thanksgiving, dubbing their sale “Grey Thursday.” Black Friday, Grey Thursday or “Cyber Monday”… it all amounts to retailers willing to do anything to make it easy for people to part with their money.
No matter what your business, Black Friday can teach you a lot about being a good business person. More on that in a second.
I have been to Black Friday events but I have never participated in one; I was a specialty retailer for nearly 13 years, and saw my share of aggressive customers fighting over “stuff.” Most people are courteous, but there’s always those one or two… You know who you are.
Being a retailer isn’t easy. You’re the last piece of the profit pie. Manufacturers typically sell to wholesalers who then sell to retailers. The storefronts are more expensive rent than a warehouse; plus there is payroll, payroll taxes, worker’s compensation insurance… And INVENTORY! The only GOOD thing about retail is that when you make a sale, you have your money. There are no net terms on invoicing. Other than that, it’s a hard day’s work for a nickel profit on a dollar. You have to LOVE retail to do retail.
Now take that nickel profit. Not a lot of margin for error. You better be on your game every day if you’re a retailer. You need to know how to get people in the door (traffic), and how to get them to buy (conversion) when they’re there. You have to know product packaging, store layout, inventory management. You need the right inventory for your customer, and you need the right amount. Buying more inventory than you’ll sell that month — even by just a little — might put you out of business. Retailers are extremely adept business people because they have to be. Very thin profit margins.
So when I see a sale with discounts greater than 45%, I feel a little twinge in my gut for that retailer. I know they’re moving inventory to pay a bill; they’re losing money on that sale. They are trying to move product and dip a little less into their cash reserve, because if it doesn’t sell, they still have to pay the bill. Lessen the loss, as it were. You see, most retailers receive net terms on the inventory they carry; they buy it wholesale and have an amount of time in which to sell it, usually Net 30 (30 days). Sometimes it’s much more; you might buy Christmas inventory in January from a catalog aggregator, have it delivered in July, and have until January 1 to pay the bill. (You have to warehouse it all those months before you can display it — adding even more to your overhead.) That’s unusual. Smaller wholesalers can only give you Net 15 terms.
WalMart is an exception. They run a store like a grocer. The vendors stock the shelves with product, present an invoice, and when the product sells, they get paid. If the product doesn’t sell, they replace it with something that does and mark down the invoice accordingly. WalMart never pays an invoice before product is sold. It’s the perfect business model. They create a box, light it up, and then have others come in and operate their inventory. They have removed one of the costliest and less predictable aspects of retailing. Pretty smart business. I admire the way WalMart re-invented the game for retail, but I am not a fan of WalMart. They didn’t change the industry, they just changed the methods for themselves. They used deep pockets to create an unfair advantage, and the market & the government allowed it to happen.
Let’s get back to retailers. They take risk. They have to have a pretty good sense when they buy something that they have a customer who will want it. They have to know their market.
Even if you’re not a retailer, there are ways to benefit from Black Friday. In my community in Santa Clarita, CA, I saw a smart restaurateur post a sign in his window advertising a champagne breakfast at 6:00 AM on Black Friday. I hope some shoppers took advantage of that; it might mellow their frenzied desperation a bit.
If you’re in a business other than retail, study what’s going on today and this holiday season. Get under the hood if you can and study the retail process. It’s really a very fascinating and unusual business to be in. You can learn a lot.
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