Saturday, November 24, 2007

And then there was Black Friday!

I don't know how many of you ever get up and partake of the insanity that is the early morning frenzy of Fry's Electronics (or whatever you favorite retailer may be) on Black Friday, but I do because you can get some truly spectacular deals. Of course, if you want those deals you have to be in line outside the store at no later than 3:30AM (they open at 5AM the day after Thanksgiving) or you will get big handfuls of nothing. I see people filling up their shopping carts with stuff they couldn't possibly use or want simply because it's free after rebate. Be that as it may, this is an important day to the US economy, and as an economic indicator it's useful in a general way to tell us how most people are doing financially.

In case you're not familiar with Black Friday to begin with, or are unaware of the reason it is so named, I'll let Wikipedia explain:

Black Friday is the day after Thanksgiving in the United States, where it is the beginning of the traditional Christmas shopping season. Since Thanksgiving falls on the fourth Thursday in November in the United States, Black Friday may be as early as the 23rd and as late as the 29th of November.

The news media frequently refer to Black Friday as the busiest retail shopping day of the year, but this is not always accurate. While it has been one of the busiest days in terms of customer traffic, in terms of actual sales volume, from 1993 through 2001 Black Friday was usually the fifth to tenth busiest day. In 2002 and 2004, however, Black Friday ranked second place. The busiest retail shopping day of the year in the United States (in terms of both sales and customer traffic) usually has been the Saturday before Christmas. In 2003 and 2005, however, Black Friday actually did reach first place.

The earliest uses of "Black Friday" refer to the heavy traffic on that day, an implicit comparison to the extremely stressful and chaotic experience of Black Tuesday (the 1929 stock-market crash) or other black days. The earliest known references to "Black Friday" (in this sense) are from two newspaper articles from November 29, 1975, that explicitly refer to the day's hectic nature and heavy traffic.

As it says, this isn't usually even the busiest shopping day of the year, so not necessarily the most important to the retailers, but it does forecast the kind of spending we can expect to see throughout the Christmas season. I'm not really going to cry for the retailers if it doesn't live up to their expectations, and I don't buy that it really helps or hurts the American economy so much because most of the crap we buy isn't made in America and holiday hirings are usually followed by post-holiday layoffs. But we can maybe look at it and see how real people are doing.

This year pre-holiday forecasts were for a weaker Black Friday than last year's:

First, the Retail Sales report last week was far worse than the headlines made it seem.
According to Merrill's David Rosenberg, "stripping out gasoline, we have the trend in ex-auto retail sales running at a -1% annual rate over the past three months and at no time in the past 15 years has that trend been so weak heading into the most important shopping period of the year."
The last time that happened was during the 1990-91 downturn.
The weak categories were precisely the ones you would expect to be weak; sporting goods, hobby book & music stores (-0.4%), general merchandise stores (-0.1%), department stores (-0.5%), miscellaneous store retailers (-0.6%), nonstore retailers (-1%).
Retailers have been pretty unanimous - from Starbucks (SBUX), which reported an unprecedented decline in store traffic, to Macy's (M), Ann Taylor (ANN), JC Penney (JCP) and Lowe's (LOW) - in reporting a housing-related slowdown in consumer spending.
As Lowe's CEO Robert Niblock said this morning, "the deterioration in housing-related metrics combined with disruption in the credit markets and the
tightening of lending standards and credit availability impacted our performance this quarter."
That's the same lethal combination of declining home values, tightening credit standards and reduced credit availability being reported across the retail spectrum, not a pretty backdrop for the next six weeks of consumer traffic.

So far I haven't found an article that gives any statistics for yesterday, but it is a bit soon. We do have reports that stores and malls were busy, but come on, of course they were. This is America. If the last person on Earth was an American the first thing they'd do is go shopping.

What's really interesting is whether Black Friday is good or bad, it's bad. Let me explain that. With so many people defaulting on mortgages and all the baggage that comes with that, and with oil nearing $100 a barrel, and with recent weakening of the dollar, Americans have less real money. A lot of Americans finance Christmas on a credit card (which I don't understand because your relatives must have ungodly expectations of you for you to need more than $200 for Christmas). Actually I'd venture that most buy some or all of their purchases on credit cards. It's unlikely the economy is going to dramatically turn around in early '08, so most people probably will be servicing that debt load well into next year. People, tell your loved ones they must not buy Christmas on credit!

Well, that's enough of that for now. I'll see about updating this as soon as some real numbers are in and see if I can find any numbers telling us what percentage of Black Friday sales were on credit.


Xanthippas said...

"No Christmas on Credit!"

Sounds like a slogan for a new responsible-debtor movement. Which would fail.

Anonymous said...

the below news article says that sales it was better this year, comments please?

according to ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, total sales rose 8.3 percent to about $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago.

Nat-Wu said...

Dang, you beat me to it. Well, there's a few possibilities for this apparent good news. First, let me say that given the credit crunch and higher cost of living expenses than last year plus the fact that real wages still have not grown for the average American, I do not believe that the answer is simply that Americans have more money. But that's my opinion and I haven't seen any numbers that show how much free spending cash the average American has. It is, although unlikely in my mind, possible that over this year Americans have been saving more money than they have in previous years.

If this does not reflect more buying on credit, it's possible that some of these purchases come from money that was not spent earlier this year, and if you read in my post retail sales were down across the board for several months preceding November. Another likely factor is that since people have less money to spend, more people made a point of Black Friday sales than had in the past because they are maximizing what little money they have.

Now that we have these numbers, we have to wait to see what numbers look like by mid to late December. If sales continue to be strong, that narrows it down to either people are going wild on credit or somehow have more money to spend. And then we'd have to wait until January to see if sales continued to be strong or if they sagged back to pre-holiday levels, which were lower than normal. At that point if sales continued to be strong going into next year, we'd know that somehow most Americans are managing to come up with real money and they're not being eaten alive by costs of living.

Personally, I think the most pessimistic explanation is likely, which is that more people spent money on Black Friday because they have less to spend overall. But I could be wrong. We'll just have to wait and see.

Nat-Wu said...

I forgot to say thanks for stopping by and leaving a comment, Anonymous, so thanks.

Now here's another answer to your question from Business Week:

I will blog about this in full later.