Since COVID-related year-round markdowns in 2020, discounting has dropped off to favor more pared-back strategies
Could this be the year we see a return to a more traditional Black Friday blow out or will discounts fizzle out? Two of EDITED’s Analysts present cases for aggressive and conservative strategies for whatever approach your business takes.
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- There are two strategies to consider, both of which have various risks and benefits. A bullish approach will eat into margins yet drum up hype and help move higher inventory levels. On the other hand, retailers opting for more subtle discounting can preserve margins and minimize returns, though they may lose traffic to more aggressive players.
- Go big with an entire month of deals and gifting promotions, which will spread out spending and ensure on-time delivery. For a conservative stance, reset expectations of month-long discounts with offers from Black Friday to Cyber Monday and tailor pre-and post-sales for new customers and VIPs (customers that have purchased 11 times or more).
- Outshine your competitors with a lucrative deal that no Black Friday shopper would be able to ignore, which in turn will prompt strong sell through rates and entice new customers. Margin erosion can be offset by avoiding blanket sales. Instead, offer spend and save or BOGO deals, and opt for a shallow reduction rate – with Black Friday falling on the 25th this year, can 25% off be worked into advertising?
- Serve up impressive deals on seasonal items like knits and outerwear to avoid a post-holiday hangover of unwanted inventory. Target products without multiple size SKUs to mitigate returns after the event and ensure partywear isn’t lined up for deep price cuts with demand set to rise later in the year.
Why Take Each Approach?
The Case for Aggressive Markdowns
It’s inherent that an event like Black Friday is at risk of losing its luster following years of repetitive strategies and recycled sale messages from brands year after year. One tactic to hold the consumer’s attention and make noise in the industry is to take back the shopping weekend and return it to its former glory when the best discounts were on offer and shoppers would wait hours to score the year’s must-have deals. This approach has several benefits.
Sell through more inventory
In the US, consumers were swayed by more aggressive discounts and sales, evidenced by sell out data across the weekend. In our 2021 Black Friday Analysis report, the highest proportion of products selling out were advertised between 50%-60% and 70%-80% with 50% being the most popular discount communicated. Missed opportunities lie above 70% off with very few products advertised to that depth last year. Use the event to be surgical with slow-moving inventory and build enticing stories around product-driven promotions.
Tempt a new customer base
Deep reductions hold the potential to capture the attention of any shopper. Brands tailored sale messages in 2021 to reward loyal customers by communicating early access offers and VIP-only deals. As a result, the proportion of new customers shopping the event online declined YoY. Win untapped business through alluring markdown offers or first-time order discounts.
Capitalize on a month-long extravaganza
Opting for an aggressive price cutting strategy supports the existing perception of November as the month of lucrative promotions. Embrace the hype when festive shopping will be in full swing. Singles’ Day continues to grow bigger each year, serving as a catalyst for sales throughout the remainder of the month. Push aggressive offers early to establish your brand as the destination for deals this holiday season.
The Case for Conservative Markdowns
In 2019, discount fatigue kicked in for consumers at the same time as retailers hit the peak of their Black Friday discounting. Subsequently, the COVID outbreak resulted in panic reductions and year-round sales, which were succeeded by more pared-back strategies to offset margin damage. As of May, the average discount depths across the US and UK have been below pre-pandemic levels, with retailers adopting a more mindful approach, which can help combat overproduction and overconsumption as well as improve bottom lines. Here’s why continuing this strategy over major sales periods can be beneficial.
Avoid unnecessary margin erosion
Deeper discounts don’t always generate sales. Next does not participate in Black Friday and its total sales in the eight weeks to Christmas were up £70mn more than forecasted, while H&M’s minimal discounting led to strong Q1 results. Last year, products reduced between 30%-40% in the UK saw greater sell outs than those between the 50%-60% and 60%-70% bracket. And, while heftier markdowns resonated with US customers, fewer orders were placed globally, bringing profitability down for Black Friday by 3% and Cyber Monday by 9% YoY. With inflation causing retailers to raise prices throughout the year, a cautious discounting strategy could benefit profitability as well as protect stock levels and minimize returns ahead of the festive season.
Black Friday sales lack substance
Reports circulated last year that products in Black Friday deals were often the same price or cheaper ahead of the event. EDITED data backed this up, finding October and November offered the deepest discounting depths in the US, while the heaviest reductions in the UK were taken in June. Aggressive red banner promotions may lead you to believe that your competitors are making extreme reductions. However, that might not always be the case.
An opportunity to reposition the event
After the turbulent events of 2020, the Black Friday period experienced a return to family values, with big box stores shuttering over Thanksgiving to give staff time with their loved ones. Additionally, more retailers are moving away from mass discounting and consumption to align with the changing consumer values, prioritizing sustainability and the kindness economy. Each year, new brands opt-out of the event altogether, or offer donations instead of discounts.
With the threat of a recession looming and the state of logistics unknown, alleviate pressure on your consumer and supply chain by dispersing deals throughout the weeks and months leading up to Black Friday. Last year, shipping and production delays saw retailers start communications for the event as early as October.
Encourage shoppers to take advantage and be the first to shop for Black Friday deals to beat your competitors to the punch. Early access and sales previews give customers enough time to plan holiday shopping and gift ideas. With Singles’ Day falling on November 11th, the market will be inundated with promotions, so be sure not to get left behind.
Instead of devaluing your products with month-long discounts, reset consumer expectations and use the main sale days for promotions. Promote offers like ‘buy now, get X% off on Black Friday/Cyber Monday’ with a code to keep customers engaged. This is a strategy ASOS ran in 2021 to secure future purchasing for December.
You can also promote pre- and post-sales to reward VIP customers (those who have purchased 11 times or more), or entice new ones. Concentrate on Cyber Monday deals to allow store and warehouse staff to celebrate the long Thanksgiving weekend.
Discount Breadth & Depth
Big sales and deep discount depths, especially leading up to Black Friday, will disrupt traditional promotions from your competition and attract new customers in the process. Last year, reductions above 50% off produced the majority of sell outs over the weekend in the US.
Customers can see through ‘up to X%’ off messages if it only applies to a very narrow portion of your assortment. Deals on a wider selection will please customers and hold a greater chance of converting online shoppers. Go bullish on either depth or proportion to serve up an enticing deal and establish your brand as always offering a go-to reliable Black Friday deal.
To preserve margins, retailers could concentrate on reducing a wide proportion of assortments over taking steep price cuts. Avoid blanket discounts and approach by category or style, so you are helping clear through slow stock. Spend and save, BOGO offers and codes are another way to maintain product value and help good sell-through post-sales.
Retailers taking a conservative approach should aim to keep reductions under 40%. With Black Friday falling on the 25th this year, 25% off will be a popular offer. The cost of living crisis will mean consumers have less discretionary income to spend on fashion. Instead of cutting prices, could you instead explore partnerships with supermarkets that would encourage spending at your brand and, in turn, also offer your customer the opportunity to reduce the cost of their grocery shopping bill?
Take a big swing on items you think your customer will respond to most. Offer a steep discount on a best-selling product to first-time shoppers and in turn, gain a loyal following long after Black Friday is over.
Tightened purse strings could mean consumers need a bigger push to rationalize fashion purchases this year. Turn through inventory quicker on seasonal items, like heavy knits and outerwear, with bigger and more enticing deals. Hold off on promoting too many year-round trends, which will hold appeal moving into Spring 2023.
Take a surgical approach to discounts to clear through old and under-performing products. Target items with limited or no size runs like accessories and jewelry, and avoid steep reductions on footwear, bottoms and other products with multiple SKUs. This will help mitigate the onslaught of post-sale returns, putting your business in a better profit and stock position for Q1.
2022 is poised to be the first year without a lockdown across the US and UK since 2019. Combined with last year’s supply chain crisis causing delays, partywear will be highly sought after. Protect these styles from aggressive markdowns as strong demand will ensure their turnover without a promotional push.
There is no one-size-fits-all recipe for success when it comes to Black Friday. Strategies that make sense for one retailer may not make sense for your business. Based on the considerations above, tailor your strategy to what best fits your customer’s shopping habits. The potential for an impending recession, margin preservation and mitigating the risk of returns will all prove crucial to success come the end of the year. On the flip side, don’t feel the need to cave in to the pressure of an all-out sales event. Several mass retailers have rebelled against the expectations of Black Friday and are reporting strong performances. Big risks can lead to big rewards, but implement flexibility to adapt to the ever-changing market landscape.
Retailers are already plotting this year’s event… now, it’s your move.
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