Bring on Black Friday

Retailers are expected to bring in about R11.3bn in additional sales this month as consumers make the most of Black Friday deals, bringing total forecast sales for November to R109.9bn.

General dealers are expected to capture a 55% (R6.2bn) share of that R11.3bn, according to research from the Bureau of Market Research (BMR) on behalf of Capital Connect, a division of fintech company Connect Group. Retailers in textiles, clothing, footwear and leather goods are expected to ring up nearly R2.8bn in additional sales, while hardware, paint and glass retailers are forecast to generate about R973m in extra value. Household furniture, appliance and equipment retailers are expected to bring in close to R904m in additional sales.

Factoring in wholesalers, which are expected to generate R8.2bn in additional sales, the total impact of Black Friday is expected to reach R19.5bn this year.

Additional retail sales for November are still expected to be significantly lower than before the pandemic, when Black Friday 2019 brought in an extra R15.4bn. But they’re likely to be up on the R10.3bn of last year.

In part, that’s the result of some recovery in the job market. Though 2.1-million people lost their jobs last year, about 750,000 new jobs have since been created, Prof Carel van Aardt, research director of the BMR, noted in a presentation last week.

There’s also been some recovery in the supply chain. Last year, many retailers had lower stock levels due to supply chain challenges, says Rand Merchant Bank retail sector head Debbie Law. "This year retailers seem to be much better prepared and, despite continued supply chain disruptions, stock levels are higher than last year."

Nonetheless, she also doesn’t expect the bounce-back to match 2019’s takings.

Van Aardt expects spending to be driven by the middle and affluent markets buying luxury goods at discounted prices, and by middle markets buying necessities in bulk. But the BMR’s findings on where these customers are buying their goods suggests the hype around an online retail revolution may be overblown.

A lot of people speak of a "new normal" — a completely transformed retail scene after Covid, said Van Aardt. "Our research didn’t find that. But it did find that Covid led to some adaptations to consumer behaviour, leading to a ‘next normal’.

"What didn’t come out very strongly [in the research] is online and pick-up delivery, and it also appears that loyalty cards are not as important a predictor of Black Friday sales as other variables."

Online-only retailers are expected to capture just 16% of Black Friday-related sales; the remaining 84% are set to come from in-store, multiple channel and omnichannel (integrated platform) retail.

"The omnichannel providers will be the real winners," said Van Aardt.

It’s the continuation of a trend that emerged even during the harder lockdowns: the biggest e-commerce winners in SA have been omnichannel, store-based brands — companies that have successfully integrated their physical and online offerings.

According to the BMR, these retailers have a strong customer orientation, in-store service provision, good-quality products, great prices, value for money and an efficient checkout system. But to be used to best effect, there needs to be uniformity throughout the omnichannel operation — from in-store purchasing, to online retail, to app-based shopping.

It’s also important to have friendly and competent staff, and to ensure customers have a positive experience right through the omnichannel, creating strong brands and strong brand identification, Van Aardt said.

The two critical factors in success, he said, are having both an in-store and a social media presence.

Since SA retailers first embraced the Black Friday concept in 2014, they’ve seen a huge rise in retail sales each November, says Connect Group CEO Steven Heilbron. He believes the consistent spike is a clear indication of the value of the annual event for boosting sales and profits.

"Forward-thinking retailers have stocked up and enhanced their in-store shopping experiences in anticipation of the Black Friday weekend," he says.

Importantly, though, he believes "retailers need to understand how consumer behaviour is changing specific to their own offerings, and they need to adapt quickly" to outsmart their competitors.

"As Professor van Aardt says, the cake is smaller, so you need to outsmart and outthink; retailers need to fight for their share," says Heilbron.

That requires getting people into stores — physical and online — which means retailers need "to innovate and be creative". And, he says, they need to access credit.

"There are many ways for retailers to grow their business and the capital is available. It’s in the retailers’ hands to grow, innovate and thrive by taking advantage of the opportunities in the market."

So what should retailers be doing to capitalise on Black Friday and the festive season? For a start, it’s about having the right inventory on the shelves to attract customers and create the optimal in-store and online experience. It’s about "building a community and a following — whether it’s physical or online", says Heilbron.

In his view, retailers draw customers into their stores because those spaces are fun, entertaining, educational and better than going somewhere else. "To do that, you need to innovate," he says. "You need good ideas, but more importantly you need to execute."

In particular, he encourages the SME market to innovate and to execute quickly. The beauty about being an SME, he says, is that the market around you can shrink and you can grow. "SMEs … have a local connection with the high street, with their communities."

But for all the opportunity that Black Friday offers, Van Aardt urged retailers to exercise caution. There is, after all, much that can go wrong.

Most obviously, a failure to keep up with deliveries can hurt a brand.

But product value dilution, where products are sold at heavily discounted prices, can also be a problem. The risk is that consumers begin to see these prices as the "new normal", refusing to buy what’s on offer at the regular price.

Brand dilution also occurs where the prices of luxury products are dropped to the point where they’re in competition with lesser brands. If that occurs, it can be "very difficult" to recover the brand value once Black Friday has passed, said Van Aardt.

Another concern is poor omnichannel integration. Several businesses have effectively put their various channels into competition with each other with, for example, different prices for products bought online or in store. It’s important that the various parts of the omnichannel experience are seamless, integrated and congruent with one another, he said.

Prof Yudhvir Seetharam, head of analytics, insights & research for FNB Business, warns stores against overestimating their stock requirements, which could leave them holding excess inventory that proves difficult to move.

Many businesses have taken steps to mitigate this risk by extending Black Friday sales beyond a single day, and running sales throughout November, for example. But with consumers feeling the crunch, companies remain at risk of not moving excess stock — particularly optional luxuries.

There are dangers in the Black Friday process for consumers too. National Debt Advisors CEO Sebastien Alexanderson encourages consumers to carefully consider the cost of their Black Friday purchases — particularly if they’re not paying cash for them.

"Last year we saw consumers loading their grocery cupboards with everyday necessities as well as spending money on big-ticket items, like home appliances," he says. "Yet many used their credit cards or even accessed a personal loan to pay for these purchases. By doing this, they not only negated the ‘saving’ on these items, but actually ended up paying more."

As it is, the personal savings rate decreased from 0.7% in the second quarter of 2021 to 0.3% in the third quarter. Law says: "This drop in savings along with the pick-up in nondiscretionary spend could suggest there is less household money around and hence consumers are dipping into funds previously allocated to savings to keep heads above water."

Analysts will certainly be monitoring consumer spending on Black Friday as an indication of just how willing and able South Africans are to part with their money.

"The past 18 months have been transformative for consumers," says Law. People haven’t been travelling as much and so have saved on transport costs, the drop in interest rates last year put more money back in household pockets, and entertainment and out-of-town holidays were reduced. Social grants were also made available to help support poor households.

Now, in the second year of the lockdown, many of these "extra" funds have either been absorbed into adjusted household spend or have come to an end. As people return to work, transport and travel costs have returned. And the country is still suffering from a net loss of jobs.

"Consumers’ enthusiasm to part with their money is still dampened," says Law, "and this may carry through into the festive season spend for this year."