The heavy reliance of retailers on festive sales

In the US, Black Friday (the day after Thanksgiving) is thought of as the day when retailers move out of the ‘red’ and into profit making territory for the year as shoppers start making their festive purchases.

Whilst it is unlikely that this specific date really holds such financial importance, retailers in the US, the UK and most western economies are heavily dependent on festive sales to drive their annual revenue. In the UK, the phenomenon of the Christmas sales is now self-fulfilling with the media and retailers simultaneously fuelling the frenzy.

Whereas traditionally, sales started on Boxing Day, this year some retailers started their sales much earlier in an effort to entice shoppers into their stores. However, despite the bargains apparently on offer shoppers should be wary, for retailers are not being as generous as they might appear. They have become much more savvy, reducing the amount of stock they hold in the run-up to Christmas and so are not under the same pressure to reduce prices heavily. As such, the headline offers are often only there to tempt customers in to the stores or on-line. Whilst some items may be heavily discounted, these are often not replicated across the whole product line and similarly, sales prices may be heavily reduced from an inflated original price.

Shoppers, like investors, therefore need to consider what the real worth of the good is, to determine whether or not it represents good value. This, however, might be easier to determine for an investment than for a gift for a loved one.