That Mega "Black Friday" Sale? It's Just The End Of The Mega"Pre-Black Friday" Mark Up

Tyler Durden's picture

"The silliness of it all is that the original price from which the discount is computed is often specious to begin with," sums up the seemingly obvious "retail theater" that plays out every Black Friday in mall after mall across America. As the WSJ reports, the common assumption is that retailers stock up on goods and then mark down the ones that don't sell, taking a hit to their profits. But that isn't typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that, after all the markdowns, will yield the profit margins they want. Buyers don't seem to mind. What they are after, especially in such a lackluster economy, is the feeling they got a deal, "I don't even get excited unless its 40% off." The manufactured nature of most discounts raises questions about the wisdom of standing in line for the promotional frenzy that kicks off the holiday shopping season. It also explains how retailers have been able to ramp up the bargains without giving away the store - until now.

 

 

Because no one needs a thing this bad...

 

Via WSJ,

"A lot of the discount is already priced into the product. That's why you see much more stable margins," said Liz Dunn, an analyst with Macquarie Equities Research.

 

...

 

The number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012, and the average discount jumped to 36% from 25%, according to Savings.com, a website that tracks online coupons.

 

...

 

Stores also field loss leaders, true bargains that pinch profits but are aimed at getting customers into their stores. Most deals, however, are planned to be profitable by setting list prices well above where goods are actually expected to sell.

 

Retailers could run into legal trouble if they never try to sell goods at their starting price. Otherwise, there's nothing wrong with the practice.

 

...

 

Penney, which made a disastrous attempt to move away from discounts...  But first it has to adjust its prices.

 

"We must and will compete to win," Mr. Ullman said last week on a conference call with analysts. "That means initially marking up our goods to sufficient levels to protect our margins when the discount or sale is applied."

 

...

 

Here's how it works, according to one industry consultant describing an actual sweater sold at a major retailer. A supplier sells the sweater to a retailer for roughly $14.50. The suggested retail price is $50, which gives the retailer a roughly 70% markup. A few sweaters sell at that price, but more sell at the first markdown of $44.99, and the bulk sell at the final discount price of $21.99. That produces an average unit retail price of $28 and gives the store about a 45% gross margin on the product.

 

Retailers didn't always price this way. It used to be that most items were sold at full price, with a limited number of sales to clear unsold inventory. That began to change in the 1970s and 1980s, when a rash of store openings intensified competition and forced retailers to look for new ways to stand out.

 

...

 

Another tactic involves raising selling prices ahead of the holidays before the discounts kick in. In an analysis for The Wall Street Journal, price-tracking firm Market Track LLC looked at the online price fluctuations of 1,743 products in November 2012. Prices climbed an average of 8% in the weeks leading up to Thanksgiving for 366, or about a fifth, of the products; the items were then discounted on Black Friday. Toys and tools had the biggest pre-Black Friday price increases—about 23%.

 

...

 

Retailers are supposed to offer items at regular prices "for a reasonably substantial period of time" before marking them down, according to the Federal Trade Commission.

 

...

 

Retailers, having trained customers to shop for deals, are stuck with the strategy for now. Macy's tried to cut back on coupons in 2007.

 

"Customers stopped shopping," said Chief Executive Terry Lundgren, "so we knew that was a bad idea."

 

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Say What Again's picture

Hey now -- You lured me in with a hot VS model, and then showed me some repugnant fat shoppers.  That was painful.

A is A's picture

This is news? You mean the shirt that "was" $125.00 for $30.00 was never $125.00.... I'm shocked.

TheFreeLance's picture

The news is that retailers in desperation have gotten almost as stupid as consumers. You cannot endlessly pull consumption forward -- let's open T-Day! -- at some point you run out. What they've done now is stock cheaper and cheaper stuff with lower and lower margins, margins that they'll only get through this weekend, if that long. Then it is a race to the bottom through Xmas with discounts. What had been some of the biggest shopping weeks of the year become absolute fire-sales. Finally, year-end inventory clearing will be just brutal.

Boris Alatovkrap's picture

Similar to analogy is QE or Scheme of Ponzi... for some point in time, hit against wall. In AmeriKa, wall is Thanksgiving morning?

Exit questioning... in AmeriKa, is kneel and offer prayer of thanks before go to mall?

King_of_simpletons's picture

The good news for me is that I don't like junk and don't "holiday shop".

Boris Alatovkrap's picture

But, but, but, then you are deprive self of engage in social custom with fellow citizenry...! You are aberration and must is to learn of compliance to unspoken but pervasive social custom.

Groundhog Day's picture

A few year ago i went out on a black friday,  other then electronics, all the discounted stuff is crap they are trying to unload in the mania.  The really high quality items are barely discounted

curiosul's picture

The only time I bought something on BF was in 2005 when I bought a 120Gb portable (USB) hdd for 40$ (after rebates) - a good price for a few years after.

Every year since then I browsed bfads.net and found nothing worth it ...

Boris Alatovkrap's picture

Are you see cabbage or kerosene for, how you say, Black Friday deal? Boris is alway to look for good deal on cabbage.

El Vaquero's picture

I have never in my adult life gone out Christmas shopping on Black Friday.  I have hated crowded stores ever since I was old enough to drive, and years ago, when I first heard Christmas music playing in a store a week or two before Thanksgiving, it struck me as prepping people for shopping, and I was rather disgusted by it. 

 

And you know what kinds of gifts actually make me happy on Christmas?  Socks.  Underwear.  This year, I could use some pants.  All the other fun shit that I like just costs too damn much for me to expect anybody to pay for it, unless somebody on here wants to gift me an AR-10 chambered in 7mm-08.  But you know what?  I'll actually use socks and underwear. 

 

I always had fond memories of Christmas and Christmas Eve though.  It used to be a tradition that we would go to my grandparents house on Christmas Eve until they passed, then it was my cousin's house and the whole family would get together.  Her ex husband would bring the posole and green chile (even after the divorce,) she'd make the beans and the red chile, there would be piles of cheese and coolers full of beer.  She hasn't put one on for the past few years due to two of her children having some very serious medical issues and her being stretched too thin, but those were events that were centered around consuming food and enjoying the family, not consuming cheap Chinese crap. 

RafterManFMJ's picture

Know how you feel; I was out a few years ago and am so far out of the TV/Consumer Mass Mind that I didn't even realize it was Black Friday. What a disaster - I turned around and went home.

Agent P's picture

Remember the Going Out of Business electronics store in the Zohan movie?  

"So, you're going out of business?"  

"No, no, no. It's just a sign. It's good for business."

Joe Davola's picture

Point them away from the teddy display toward the grizzly rack.

Nothing but the truth.'s picture

Go burn some moar plastic on some shit you dont need - good old American psyche.

Pure Evil's picture

Must of been a shiite load of dildos and sex toys on sale at both those stores.

Who in their right mind screams and yells to get at underware?

nickels's picture

Since dog fighting is illegal, the next best thing is to go down to the mall on black friday with a thermos of coffee. Find a bench outside a major anchor store and sit there with your camera. It's very entertaining in a "Lord of the Flies" sort of way.

El Vaquero's picture

It's tempting, but a friend lives up in the mountains, and I could instead spend Black Friday in front of his wood stove drinking beer and eating elk or the antelope that his son killed this year.  Add to that some green chile and posole that I grew, and it's good times.

TBT or not TBT's picture

How does the Nuge run the amplifiers up there? Can't imagine him going unplugged.

Agent P's picture

I'll do anything to get at underwear if it's on the right woman. 

XAU XAG's picture

No worries guy and girls

 

They are only spending YOUR TAX $$$.........I assume this is the 51% doing the Black Friday Run?

 

Are socialism at it's best

TheFreeLance's picture

Muppets train well.

Rainman's picture

Man pay 10 dollar for a 5 dollar item he needs.

Woman pay 5 dollar for a 10 dollar item she doesn't need.

XAU XAG's picture

@Rainman

 

That so true.

 

I once put a note in my wifes purse when she was going shopping.

 

It read

 

Do you really need it?

Can you really afford it?

Will you really wear it?

 

I got a phone call from the checkout....................She was laughing 

 

Thank God!

XAU XAG's picture

@TheFreeLance

 

You think those in the VID are Goldman's Clients???

orangedrinkandchips's picture

It is called Low Balling someone....

 

It's a mind trick, not the Jedi type mind you. 

 

Oh, this pile of shit was worth 250 bucks!! but you get it for 29.99.....ACT NOW SUPPLIES ARE RUNNING OUT!

Winston Churchill's picture

SSHHH.

Been doing that for forty years, and I'm not even in retail.

RaceToTheBottom's picture

Wonder how many deaths will be attributed to fat stupid shoppers running over each other at late hours trying to buy the one or two good deals available?

 

Maybe they should let the people riding obesity carts in for an hour first? I would pay to watch that demolition derby....

Pure Evil's picture

I can see it now.

Futuristic movie based upon the Running Man theme but with fat stupid obese shoppers riding Lil Rascals and avoiding corporate salespeople trying to murder them and large amounts of consumer retail goods stacked to the ceiling that have the propensity to fall over onto a shopper with enough girth to create their own gravitational field.

It would be called Riding Man, The Obesity Conundrum

Big Brother's picture

Sell that idea to Mike Judge.  I'm sure he'll give you executive producer credits.

SilverIsKing's picture

All one needs to do is bring their smart phone to the store and check prices online before making puchases at retail.  The sheeple haven't figured this out yet.

Big Corked Boots's picture

Most 0bamaphone users can't read the user manual to figure out how to do that. They really need the device to text and babble only.

Pure Evil's picture

Or walk around and put on airs pretending their "somebody" better than the rest of us because they're talking on a cell phone.

I guess you could call it celebrityism, or the desire to be more popular than you actually are.

I see these clovers all the time in stores or while driving around.

NidStyles's picture

Someone has been reading too much of that there Eric Peters Autos site.

Herd Redirection Committee's picture

My first thought is, if someone called me, because they were standing in line at the grocery store, does that really warrant them wasting my time?

F.A. Hayek's picture

Consumerism. What an effin joke.

NOTaREALmerican's picture

What else is there?  

People need something to occupy their time with.

SheepDog-One's picture

The connedsumer sheeple hordes just disgust me.

ronincap's picture

Black friday is designed for people with an IQ less than 75

krispkritter's picture

And you can readily identify them, they are the ones in the tents that show up a week before BF and lead the stampedes into the stores at 4am.  Actually if you wait until after the holidays, like February, you can buy all the shit they bought on Craigslist, as they sell it off to pay the credit card bill they just got and can't afford because they bought all this shit they didn't need to begin with.  Wash, rinse, repeat.

MachoMan's picture

What baffles me is that everyone has internet access and there are countless websites dedicated to cataloging the price of common consumer items over the years...  it takes but a moment to see the general price over the last year+ for virtually any item over $20 in a big box store.  This is part of the pains of a dying business model, just like main street mom and pop shops died, the big box stores have been one-upped by warehouse e-tailers and direct sales to consumers.

Big Brother's picture

To lesser extent, the mom and pop shops have come back with the niche of being able to repair the stuff you buy at the big-box store or online.  The shoe and furniture repair guys in my city always have work.

TBT or not TBT's picture

Get a kit of 5 minute epoxy, the extra large size, WestSystems brand made for building and fixing boats. It stores forever and is freaking ballistic strength. Helps to have some coffee stirring sticks from Starbucks, a box of nitrile gloves, and an el cheapo gram scale to nail the 1:1 ratio.

StychoKiller's picture

Hmm, for the furniture or the shoes?  :>D

TBT or not TBT's picture

Shoe Goo. Available at....Wal-Mart.

TBT or not TBT's picture

Shhh!, Don't bring up the Bell Curve! If you start looking at distributions of measured IQ's(or components of IQ, or any other measurable thing) by, sex, "race", ethnicity and so on, you will find out all sorts of things that are Wrong and Shocking, such as, the middle of the distribution is different between different sub populations. Also the distribution is wider(longer tails) with some sub populations and narrower with others.

Larry Summers can explain how this is Wrong and Shocking, in the context of pointing out that the distribution of math and spatial reasoning is much wider(longer tails) in male humans vs female ones, which would make you guess that there'd be many times more men than women who are stupider than threshold X of that metric..but also many more men than women who are much smarter than threshold Y in that metric. Which would make sense of the ratio of men to women in mathematics and physics departments at elite universities, without casting ALL women negatively...because the mean is not that different between the two distributions.

This must not be said, and is doubleplusungood. It shall also not be observed that in even in biology or animal husbandry that distributions of any measure(say, femur length) are narrower among XX groups than among XYs. In mammals, but not human mammals. You start thinking that shit, well fuck you! Bad person! Bad!

Yen Cross's picture

   Looks like a 'Southern European' bank run.

forwardho's picture

raises questions about the wisdom of standing in line for the promotional frenzy. Really?

Just the opposite, it removes all doubt.

 

The Count's picture

The masses want to be suckered in. Just look at Formula 1 racing. Totally silly watching cars driving in circles that are only one big advertising platform. Owned by Bernie Ecclestone, corruption and manipulation abound. Yet millons watch it. In part simply because its on TV. And advertisors will make sure their 'sport' will get coverage.