The Lightness of Black Friday

According to Kevin Roose of the Daily Intelligencer, Black Friday is “a nationwide experiment in consumer irrationality, dressed up as a cheerful holiday add-on.”

It’s hard to disagree with Kevin’s assertion!

The problem with Black Friday is not so much the consumer irrationality (although that really should be a concern for society!); it is more about how suppliers both anticipate and succeed in increasing their inventory turnover by taking advantage of the irrational consumer. Is that such a bad thing?

I think it is and here’s why – first, sales days like Black Friday evoke erratic behavior and, second, these types of frenzied sales force consumerism to take a back seat.

Black Friday sales are not necessarily big sales, but they are a super opportunity for suppliers to unload their burgeoning warehouses. This speaks to poor management of inventory and too much inventory, at its core, implies (and typically masks) big management issues with the company.

Excess inventory may mean that a company is placing inaccurate inventory orders. When this happens, the company holds more inventory than the market demands. That’s why sales like Black Friday are a welcome opportunity to unload the excess, even if it is at a discounted price.

Too much inventory creates other problems for the company, as well. For instance, too much inventory takes up valuable floor and shelf space. If the item does not sell quickly, then other more valuable inventory does not make it to the shelf. This is a double whammy, so-to-speak. Not only is the poorly moving inventory not selling, but neither is the good inventory.

And when companies aren’t able to sell their inventory, this hurts their bottom line. Black Fridays and other types of sales days provide an opportunity for the retailer to drastically cut costs to sell its inventory – even if the sale is a net loss.

A major concern for companies is not only the space taken up by slow-moving inventory, but the associated carrying costs. These costs are typically about 30 percent of the value of total inventory. For instance, if the value of all television sets at your favourite store is about $1 million, then the cost to the company to carry (store) that inventory is another $300,000 on top of that. Carrying costs include things like rent, utilities and labour.

And let’s not forget about waste. In a worst-case scenario (and we know that this happens more often than not – even in Victoria!), companies throw out their excess inventory. This is why it is so critical for companies to ensure that their inventory turnover is high – to reduce carrying costs and waste – both of which cut into profits.

Ultimately, the question we should be asking is:  “Why do we need so much stuff?” And, why do suppliers need to meet this demand?

It’s true that consumers drive demand, but it should be a corporate social responsibility on all suppliers – from the acquisition of raw materials to the end seller – to help everyone curb excess. But who will start first? Will it be the consumer who refuses to engage in sales like Black Friday; thereby not helping companies move their inventory? Or will it be the smart supplier who decides to stop stocking whatever the consumer wants (and, therefore, risks going out of business)? It’s a difficult question indeed.

For my part, I bought a new iPhone today. Who do I blame? Me for buying a product that I did not need? Or the store that stocked it and enticed me with a good price?