Retail Insights

Black Friday anticipation holds back October sales

Retail sales disappointed in October as the anticipation of Black Friday meant consumers delayed spending in the expectation of deep and widespread discounts.

Retail sales rose by 0.7 per cent year-on-year (non-seasonally adjusted) in October according to the Retail Economics Sales Index. The three month rolling average, which smooths seasonal distortions, fell to 1.4 per cent from 1.8 per cent in the previous period. Given September’s strong performance, and the ongoing support for the positive consumer backdrop, these figures were weaker than expected.

Retail Economics Sales Index: Total retail sales

Chart 1

Source: Retail Economics Sales Index

We believe consumers have delayed spending in anticipation of Black Friday while some purchases were also pulled forward into September. In combination, this held back sales growth in October.

Chart 2

Source: ONS, Retail Sales Index – large retailers

Last year was the first time Black Friday caused a material change in the timing of Christmas sales as consumers brought forward their purchases to take advantage of widespread discounts at the expense of December’s trade. The chart above compares sales growth against the previous month for large retailers, reflective of those most engaged with Black Friday promotions.

Monthly sales growth between October and November was significantly higher in 2014, up 12.9 per cent compared with an average of 10.9 per cent from 2009 to 2013. Consequently, sales growth between November and December was much weaker. In 2014, retail sales for large retailers rose by just 17.9 per cent, the weakest for over 10 years. This compared with an average growth rate of 23.3 per cent from 2009 to 2013.

This shift in spending patterns has a significant impact given 28 per cent of total retail sales occurred in the final three months of 2014. Lower profit margins, logistical challenges, under-staffing and bad publicity are just a few of the challenges retailers will face. Nevertheless, the genie is out the bottle and Black Friday has created a new form of consumer flash-demand. Compressing a high volume of transactions in to a shorter period of time with lower margins will inevitably erode profitability.

However, there is likely to be a considerable amount of pent-up demand for November sales.

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