06 Dec 2019 15:56 IST

Why the Black Friday sale may not work for retailers in India

As it comes soon after Diwali, it's unrealistic for retailers to think this sale is a good idea

On Friday, the 29th of November, I was swept away by a sea of advertisements for Black Friday sales. What was ironic is that these advertisements were in India, for Indian retailers, and the advertisers ranged from Starting from malls to department stores, to supermarkets, with even a watch store jumping on the bandwagon.

So, what is wrong, might be a typical reader’s response.

Let me explain the reasons why this is not a positive step for the Indian retailers.

The context of the Black Friday sale is strongly linked to the American practice of Thanksgiving, which usually kicks off the Christmas shopping season. One of the explanations for the term Black Friday is that these sales jump-start volumes for retailers, whose profitability moves into a positive number, and hence the term “black”. This is in contrast to the colour red being used to show losses. This is mainly because the single largest sales season for retailers abroad, especially in the US, is the pre-Christmas period. As much as 20-30 per cent of a retailer’s sales are generated during this period of approximately three to four weeks. The remaining sales are generated over 48 weeks. Now, one can understand the significance of the Black Friday sale for an American retailer.

Why is it not relevant for India?

Annual buying pattern

India is a land of festivals throughout the year across regions, and we have celebrations almost every month. In that context, shopping volumes spike during the following periods — Diwali and Dussehra. Some regional spikes happen during Pongal and Onam. In addition, the practice of the New Year sale has become quite common for the consumer durables and information technology (CDIT) retailers. Apart from all that, there are seasonal sale periods for certain States, such as the Aadi sale in Tamil Nadu. Finally, add on the End of Season Sales (EOSS) that almost every lifestyle retailer has. The number of promotions and sales are simply too many to keep track of.

From a purchasing power perspective, November has always been a dull period as it comes after the massive splurging by shoppers during Diwali. Although the Black Friday sale might look like a fantastic opportunity to jump-start sales during this dull period, the key question to ask is: Do shoppers have money in their pockets, so soon after Diwali? Sure, easy credit is used very frequently nowadays. However, is that also available after the Diwali shopping is done?

Frequency of sales and promotions

The year-end sale for consumer durables and electronics is becoming a common trend. So, shoppers have splurged for Diwali, and might be saving up and/or planning for some big-ticket purchases in December. In that context, how will the Black Friday sale fit into shopper behaviour. What can happen? Will the shoppers shift to Black Friday offers and therefore make the New Year sale redundant? Or, vice-versa? If retailers hope that both these sales promotions will gain prominence and result in significant sales, especially after Diwali, that might be unrealistic.

Margin pressure

Indian retail has significant margin pressures in most categories, especially where the MRP is involved. Cost plus pricing is not possible when MRP is mentioned on the packaging. As such, any such deep discounting is either a hit on the retailer’s margins or has to be subsidised by the manufacturer. This year, manufacturers might not mind that extra spend to cope with the consumption slowdown. However, it is questionable if that would be consistent.

The better strategy would be to adopt a focused sales and promotion strategy. Identify key categories for each of these seasonal occasions and focus on the same with deep discounts. That would help create a better and more well-defined expectation in the minds of any shopper. Plus, the overall hit on margins would be manageable and realistic.