November 20, 2022
Black Friday Is Changing
It is Thanksgiving week, and for many that means another Black Friday shopping experience. I must say, there’s really nothing quite like hitting the 1:30 a.m. sales after a long day of turkey and pumpkin pie. Whether you view that as enjoyable, or quite the opposite, there’s reason to expect this tradition is changing. There are growing supply and demand-side reasons why much of the Black Friday bacchanalia will be very different in the years to come.
Across much of the country, labor markets are tighter now than they’ve been in two decades. Especially here in the Midwest, many employers are feeling their first really tight labor market since the 1990s. The most difficult jobs to fill are always at the bottom of the pay scale, and that often means retail establishments. That’s the risk to the traditional Black Friday we’ve come to know.
Black Friday at any store is a large operation, requiring substantial staff and expensive overtime. Even efficient, highly productive firms, like Walmart or Target, are strained. That is why I think Black Friday will change. It is simply becoming too expensive to continue the way it has been. Very tight labor markets make retail employees more expensive. That dampens the ability of a store to offer the extended hours and high-volume shopping that normally have accompanied Black Friday. While most stores cut back on hours during COVID, many are making even deeper reductions in the hours of opening.
Most retail stores had announced their holiday hours since early November. Nearly every large retailer will be closed for Thanksgiving. Among national chains, only pharmacies, some dollar stores, and Big Lots are open. I suspect a number of grocery chains and most gasoline stations will also be open as well. However, none of these stores will be opening late on Thanksgiving to start the Black Friday deals.
Only Old Navy stores are advertising a midnight opening on Black Friday. Otherwise, the earliest Friday morning openings are at 5 a.m., from only a few stores including Walmart, J.C. Penny, and Kohl’s. Most of the other big retailers are opening between 7 a.m. and 9 a.m., with some keeping their traditional later openings.
The big innovation this year is the extension of Black Friday sales to earlier in the month. A few started in mid-November, while more added sales beginning Sunday or Monday before Thanksgiving. Nearly every other store offered their online Black Friday discounts on Thanksgiving, presumably trying to get ahead of the Cyber Monday sales day, which will likely top $10 billion in one-day sales again this year. This will give me the chance to complete my holiday shopping during halftime of the Bills vs. Lions football game.
Holiday sales are critical to American retailers. About a quarter of all annual retail sales occur between Black Friday and Christmas Eve. A longer shopping season due to an earlier Thanksgiving also boosts sales. The success of many retailers depends upon their success on each holiday sales season, and their preliminary sales data are important to their investors.
Retail in the United States is terrifically competitive, so there would have to be substantial economic incentive to give up even a few lucrative hours of sales on Black Friday. Yet, most are doing so. This likely means that the pain of tight labor markets and the risk of losing workers outweighs the profits of opening a few hours earlier on Black Friday.
This is probably very good news for workers. While a few folks would like the overtime and extra work hours available on Thanksgiving and Black Friday, most would probably trade that for the higher retail sector wages and better working conditions. Retail wages last month grew at an annual rate of 4.1 percent, which were considerably better than inflation in real terms. That is the result of tight labor markets accompanied by continuing demand for goods.
Labor market conditions also matter. Most workers will require higher wages to work in firms that schedule odd hours or offer unattractive work conditions. So, the decision to cut back on Black Friday hours is profit maximizing for these firms. If labor markets continue to tighten, we should expect even more early closings and modified hours. Consumers and businesses alike will adjust to these tighter labor markets.
On the demand side, there’s no shortage of consumers looking for a bargain. It is what we do, but the Black Friday rush requires people shopping directly at retail stores. Though consumer spending looks to be robust this year, despite inflation, so too does online shopping.
At the beginning of COVID, back in the winter of 2020, 11.3 percent of consumer sales were online. Over the 2019 holiday season it was only 11.2 percent. As of last summer, the share jumped to 14.5 percent. That means that this holiday, a full 15 percent of retail sales will come from online stores.
This figure understates the true share of holiday shopping because retail sales includes food, auto parts and other items generally bought at stores. For much clothing and general merchandise, one in five dollars is spent through online shopping. This means in many stores that used to prize Black Friday’s customer rush will find far fewer customers than in past years.
Inflation has consumed some purchasing power from American households. However, the average American family received more stimulus money than they lost through inflation. Households continue to have large savings. That suggests a pretty good holiday spending season this year. On the demand side there is some likelihood that brick and mortar retailers should expect a less profitable season. However, the real risk to Black Friday comes from the supply side, namely workforce issues.
Some of us will dearly miss the pre-dawn rush at the local big box retailer. The rest of us will have even more reason for Thanksgiving this season. These tighter labor markets mean more businesses think it important to allow their workers to spend time with their families on Thanksgiving. For my part, as long as Rural King still has their birdseed sale on Black Friday, I’ll be happy.
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