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Black Friday is bad for business

Peter Fader

In 2018, Americans spent $6.2 billion on Black Friday and $7.9 billion on Cyber Monday. Respectively, that’s a 23.6% and 19.7% growth year on year—not to mention the fact that Cyber Monday last year was the US’s biggest online shopping day of all time.

Those numbers sound like good news for retailers, right?

Wrong.

The reality is that Thanksgiving weekend has become a time when retailers treat their worst customers like royalty.

For those retailers brave enough to buck the status quo, there are ways to reimagine Black Friday to minimize its damage or at least turn it into a genuinely valuable opportunity to enhance customer relationships—other than just doling out excessive discounts. But first, retailers have to understand why, exactly, the current pattern of blow-out sales is such a big problem.

Price problems

A lot of retail strategies fail to realize that not all customers have equal worth. There are high-value customers who have an ongoing relationship with a retailer and make high-margin purchases throughout the year.

Then there are low-value customers, the kind whom Black Friday attracts: These customers have almost no relationship with or loyalty to a retailer and only occasionally make purchases—and those purchases usually have low margins. On Black Friday, retailers tend to overly invest in low-value customers, pulling out all the stops in the hopes that doing so will somehow turn low-value customers into high-value customers.

Yes, the sales numbers can be large, but think of the cost: extra hours, extra pay, and extra hassle in return for low-margin purchases made by the kinds of customers who likely won’t shop there again—until next year.

Black Friday is not the biggest sales day of the year—that day typically falls right before Christmas—and profits often aren’t significantly higher for retailers that go all-in versus those who are more conservative about it.

My advice to retailers this holiday season is to think and act differently when it comes to Black Friday. Here are a few ways retailers can flip the Black Friday script and approach the holidays with a customer-focused mindset that will serve your business better over time.

Strategy one: Just skip it

A small but growing number of retailers have recognized that Black Friday simply isn’t worth it—and that they can benefit more from staying closed altogether than they can from extending their hours and slashing their prices.

REI is by far the best example of this approach. Since 2014, the retailer has not only closed its stores, but also paused its online orders and declared Black Friday a company holiday (with pay) for its employees, imploring them—and REI’s 18 million members—to #OptOutside and enjoy the outdoors instead of hitting the sales. This campaign is perfectly in line with REI’s mission and gives the retailer a huge win from a reputational standpoint while strengthening customer relationships (and thus profitability) in the long run. (After all, before you can spend the day outside, you may need to pick up gear from REI.)

This year, REI is going a step further, using Black Friday to kick off a year-long campaign urging its members to “opt to act,” beginning by joining one of more than 80 outdoor clean up events happening that day across the country.

Strategy two: Aim low

As mentioned, Black Friday’s deep discounts generally attract low-value customers. Retailers may decide that it’s best for their business plan to go with the flow and court these customers on Black Friday. That’s fine, as long retailers change their behavior accordingly.

When you’re pursuing low-value customers, play defense, not offense. Your goal here shouldn’t be to build customer relationships because you won’t succeed—these customers know exactly what they want to buy and how much they’re willing to pay before they even step into your store.

The right approach here is to offer deals that don’t go overboard. Take a look at the numbers and thoughtfully consider what makes sense, given the fact that most of these customers aren’t worth a long-term investment since they aren’t coming back until next year.

Here’s a non-Black Friday example that shows how this strategy works: Nordstrom makes an effort to treat different tier customers differently, every day. Its outlet store, Nordstrom Rack, is aimed at low-value customers who are drawn in by the deals much more than a deep connection with the Nordstrom brand. So, Nordstrom separates out these customers, offers them deals without going crazy, and doesn’t overly invest in their customer relationship.

Strategy three: Aim high

Those resources can then be reserved for high-value shoppers who will are likely to choose a brand first out of preference and loyalty. Take Nordstrom’s new flagship location in New York City, which prioritizes building long-term relationships with high-value customers through experiences and services over immediate sales. Customers can get a range of beauty treatments here, dine at several high-end restaurants, and take advantage of services ranging from 24/7 pickup for online orders to having food delivered to them while they shop.

Retailers can flip Black Friday on its head by taking inspiration from Nordstrom and turning it into an opportunity to grow their relationships with high-value customers. Features like VIP shopping hours just for customers who have high value is one option. Or, a retailer might lure shoppers in with the promise of extra services and activities. In general, retailers should deploy their best assets and efforts towards their best customers—not their worst.

The bottom line is that retailers shouldn’t feel compelled to run conventional Black Friday sales just because their competitors are doing it. Think about your best customers first: use Black Friday to reward them and strengthen the relationships that matter most, and that align with their values. In the long run, it is this kind of thinking that will help retailers stay in the black—much more effectively than short-term promotions aimed at less-valuable customers.

 

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