Notes on Black Friday: Is 30 Off the New 40 Off?
It Wasn’t the Best of Times, But It Wasn’t the Worst of Times Either
Scenes From the Mall
Last week, I spent the afternoon and evening of Black Friday doing what I have done pretty much every year for the last couple of decades: checking out the crowds and promotions at the Westfield Garden State Plaza mall. It’s a large A++ rated mall in Northern New Jersey, about a half an hour outside of New York City, anchored by Nordstrom (JWN), Neiman Marcus (private), Macy’s (M), and a large AMC (AMC) movie theater.
Malls are given ratings based on their occupancy and rent levels, the sales productivity of the stores within them, tenant quality, foot traffic, and the general attractiveness of their local region based on population density and income levels, as well as the property’s competitiveness versus local rivals. Garden State Plaza is an excellent property within a secularly challenged category (enclosed malls).
I suspect my observations would have been extremely different, and much more negative, had I gone to a B-rated mall.
My Black Friday process is decidedly unscientific and qualitative, but going to the same place every year and looking at the same things can give a sense of general direction. More than anything, it tells you something about the companies operating at the extremes. Offering no or few promotions is generally a good sign, unless you are talking about a luxury store like Louis Vuitton (LVMUY) that never has sales and promotions. And promoting at 50% off or more is usually a bad sign, unless you are a chain like Aeropostale (private), which always does that, so that level of discounting is likely worked into its financial model when mapping out list prices on the tag and projected gross margins.
Before I jump into what I saw at each retailer and offer tidbits and observations on 35+ retailers, I’ll offer a few more general, high-level observations on trends and the overall environment.
First off, I saw a lot more stores offering 30% off the whole store this year than I did last year, when it was predominantly 40% off the whole store. This doesn’t mean that the consumer is stronger or the propensity to spend is higher, but it probably means that for at least some retailers, inventory levels are more in check than they were at this time last year. Better inventory control could bode well for gross margins in Q4, assuming these leaner inventories contain the right products and customer demand doesn’t fall off a cliff in the next four weeks.
In terms of trends, there were three fashion trends that could not be ignored.
First, sequins. Sequins are always big for the holiday season, but this year the sparkle was next level.
Second, silver. Silver tops, silver leather and pleather bottoms, silver shoes, silver accessories. Silver, silver, silver.
Trends usually start on the runway… but I suspect these two trends were really born in football stadiums. No, the NFL hasn’t gone glam. Summer music tours may be over, but the influence of two power women on the overall economy keeps on going, often in unexpected ways.
Thank Taylor for the sequins:
And Beyoncé for the silver:
It’s amazing how these two women continue to dominate the conversation for the female consumer, long after their summer tours have, like the warm days of August, slipped away into a moment in time (see what I did there – look what she made me do).
The third trend was not in fact Barbie Pink – sorry, Mattel (MAT), that trend feels over – but instead “vegan leather”, which is a fancier term for what we used to call “pleather”, or fake leather. The origin story for this is less clear, but the trend itself certainly feels music inspired as well, because what’s more rock n roll than a pair of black leather pants or a leather moto jacket.
If you think I am making all this up, please enjoy this picture off the Anthropologie (URBN) e-commerce site that manages to squish all three trends into one (the sequin bodysuit is $118 btw and already sold out in four of five sizes).
Among the stores leaning hard into these trends are Anthropologie’s sister company within the Urban Outfitters complex – Free People, Gap (GPS), Express (EXPR), and H&M (HNNMY), just to name a few.
The good thing about these trends is that these are items not necessarily already found in every woman’s closet. Black leather/pleather… maybe. But silver pleather pants? No. But, now I have a pair. I’ll chalk up that $108 to occupational hazard.
These trends aren’t for everyone, but at least there is some newness here.
And, sadly for those in the Northeast, it finally got cold this weekend – which was probably very helpful and timely for the coat business over Black Friday/Cyber Monday, as well as a boost for the cold weather accessory gifting business (hats/gloves/scarves).
If I haven’t bored or scared you off yet with fashion talk or Taylor Swift lyric Easter eggs, you will now be rewarded with some numbers.
According to Adobe Analytics, $9.8 billion was spent online on Black Friday, a 7.5% increase over the prior year.
Shopify (SHOP) said its online merchant customers pulled in $4.1 billion in sales on Black Friday, up 22% from last year.
Sensormatic Solutions said in-person shopper visits were up 4.6% versus last year, which would be twice the rate that foot traffic has generally increased this year. A positive sign, but there’s no information about conversion here… window shoppers don’t pay the bills for retail.
So the consumer isn’t dead, but it does seem like retailers are acknowledging that budgets may be tighter this holiday season by talking a lot about increasing their selection of lower ASP (“average selling price”) merchandise, enabling people on a budget to still be able to buy things. This also lines up with the slowdown that’s been reported at a lot of luxury goods makers.
It adds up to a consumer that is still spending – but perhaps spending more judiciously. Unemployment is still low, and when people are working and not too worried about getting fired, Xmas will never be canceled. Nor will Black Friday… because who doesn’t love a deal?
But with the coffers of stimulus checks long run dry, and inflation and higher interest rates like a slap in the face, carefree carpe diem spending feels a little DOA at the mall (although it is still alive and well when it comes to experiential spending on things like concerts and travel).
So things aren’t terrible, but they aren’t great either. Which means for most retailers, Q4 performance will come down to execution, because a rising tide will neither lift all boats, nor will a falling tide universally sink stores.
The Laundry List of Discounts and Other Observations (with apologies for snark)
Abercrombie (ANF) – 25% off everything (on the low side). It still shocks me that they sell size 34 women’s pants now. This isn’t your 2006 Abercrombie anymore, but more inclusivity seems to be working for them, finally exiting the penalty box after about a decade.
Adidas (ADS GY) – 40% off the whole store, but exclusions for Gazelles, Superstars, and Sambas. The 90s and Y2K are back, still! I was a little surprised to see 40% on most items here. I didn’t get to a Nike (NKE) store, but I can’t imagine they were doing a broad 40% off.
Aerie (AEO) – 40% off the whole store, 10 for $35 underwear, one of the busiest stores.
Aeropostale (private) – 60%- 70% off the whole store. But this is their normal strategy.
Allsaints (private) – 30% off the whole store.
American Eagle Outfitters (AEO) – 30% off the whole store, lots of inventory piled high at the end of the day, despite seeming to have quite high traffic (remember this is but one of hundreds of stores, so take this one data point on inventory with a giant grain of salt).
Apple (AAPL): $25 dollar Apple gift cards with purchase of some lower priced hardware items like 3rd Generation AirPods and the iPhone SE (which starts at $429), scaling up to a $200 Gift Card with a 15-inch MacBook Air (which starts at $1299) … so a 6% to 15% bonus with purchase. Typically slim promotions from Apple, which conducts itself more like a luxury retailer than an electronics retailer.
Aritzia (ATZ CN) – Signs said up to 50% off, but when you got inside, almost everything was only 10%-20% off. It was packed like crazy. The busiest large store I visited. Long line to try on. There was a lot of self-purchasing happening. This was my first runner-up for Black Friday winner. Bonus advice – if you are a woman and need a puffer coat, check theirs out. Their wool coats too. Great looking quality for the price.
Banana Republic (GPS) – 40% off the whole store, same as Gap.
Bath & Body Works (BBWI) – Buy 3, Get 3 free. This is essentially 50% off, but this is their normal, so I don’t think it is alarming.
Coach (TPR) – 25% off a lot of the store, 50% off a smaller selection of styles. It could be more promotional, but 25% off almost the whole store is a tell that this is not a true luxury retailer, no matter what their investor relations deck might claim.
Doc Marten’s (DOCS LN) – 25% off a small selection of items. Trying to stay elevated. Being very European about the whole thing. This stock has done nothing but disappoint since its IPO in 2021. They are clearly trying to protect brand integrity by not discounting heavily in the U.S. market. Probably the right things to do for long-term health (ask Abercrombie how panicking in 2008/2009 and breaking price for the first time worked out for them), but the lack of promotions in the U.S. is causing some serious short-term pain, as the company dropped 21% today to an all-time low on a profit warning, driven by weakness in the U.S.
Express – Yes, it’s still public and hanging on by a thread, with a $34 million market cap. 50% off everything. I hope they make it because their FlexX denim is the best pair of fashion jeans out there for under $100.
Foot Locker (FL) – Busy. A smattering of discounts but lots of exclusions. There was 25% off a lot of stuff, including some Nike. I wonder how Nike feels about that, because these two are still in the “it’s complicated” stage of their relationship.
Free People (URBN) – this was my second runner up for Black Friday winner. It offered an additional 25% off clearance merchandise only. And there was only one clearance rack with maybe 50 units of summer weight clothing on it. There was also 50% off all hats and 25% off all accessories. Basically 90% of the store was full price, yet women were still shopping there.
The very meager discounted clearance section at Free People.
Gap – 40% off the whole store, same as Banana Republic. Traffic seemed better than last year. So. Much. Pleather.
H&M – 30% off the whole store.
Hollister (ANF) – 40% off the whole store. Interesting it wasn’t the same discount level as sister company Abercrombie (25%). I suspect Hollister has an inventory problem, but Abercrombie does not.
Hot Topic (private) – Yes, this still exists. Buy one, get one 50% off (so kinda like 25% off).
J. Crew (private) – 50% off the whole store, except cashmere, which was 20% off. I think in past years, cashmere was often totally excluded from Black Friday and full price. So not a great sign, especially in conjunction with 50% off the store. I suspect they have an inventory problem because otherwise I don’t understand this choice to be so promotional at a more elevated, higher ASP retailer. Plus the store was quite busy – so it’s not like the brand lacks fans.
J. Jill (JILL) – 30% off the whole store.
Kate Spade (TPR) – Up to 50% off everything. Most of the store was 50% off, some only 40% off, and there was a tiny section of new arrivals at full price. When Coach (now Tapestry) bought Kate Spade, they said they would pull back on discounts. That doesn’t seem to be happening, at least not right now. The product looked like it was less Coach-ified (lobotomized?) than it has been in recent seasons… Kate’s gotten its whimsy back, but perhaps they have hooked their customers on constant discounts. Also, it probably isn’t helping the handbag category that price points here are higher than in apparel.
Kendra Scott (private) – 40% off this whole store, which sells fashion jewelry at affordable price points. It was PACKED with young women.
Loft (private) – 50% off everything. Ruh-roh?
Lululemon (LULU) – No promotions except for their normal small clearance rack. Very healthy, no surprise here.
Madewell – 50% off everything. Very busy. This brand seems popular and on trend. Not sure why it is so aggressive with the 50% off – maybe it has an inventory glut. This level of promotion for this kind of store is counterintuitive to me, as it also was for sister company J. Crew.
Michael Kors (CPRI) – 25% off the whole store. Not well trafficked. Going hard at the silver and sequins but relative to competitors at similar price points in apparel, the clothes looked cheap and less elevated. They should have nailed this trend, given their self-proclaimed “jet set” vibes.
Nespresso (NSRGY) – Buy 9 sleeves of coffee pods, get 2 free (works out to up to 18% off). Almost never any discounts here – just this one day.
North Face (VFC) – 30% off the whole store. There was a long line to get in. There was a long line last year too, but given the recent woes at parent VF Corp, I didn’t expect this store to be as popular as it was.
Old Navy (GPS) – the sign said “50% off deals”, but I am not sure how extensive said deals were, because you couldn’t pay me to buy GPS shares, so I didn’t spend the time going inside to explore.
Tilly’s (TLYS) – 30% off the whole store.
Tory Burch (private) – 30% off the store, but lots of exclusions. Decent traffic flow. Is this company making a comeback?
Victoria’s Secret and Pink (VSCO) – 40% off almost the whole store. Their normal. 7 for $35 panties at VS. Also normal. Was less busy than last year but I also went after dinner versus mid-afternoon so it’s not apples to apples, so probably best to ignore me. Plus it’s just one store.
White House/Black Market (CHS) – 30% off the whole store.
Luxury – Burberry (BRBY LN), Gucci (KER FP), Louis Vuitton and others – These stores were of course not promoting, if they were, they would be immediate candidates for shorting stock. But an interesting change was they stayed open this year for the full mall extended hours, meaning they stayed open until 11 pm. In the past, they closed at the normal mall closing time, 9 pm, along with luxury department store Neiman Marcus, which still closed at 9 pm this year. I was surprised to see these luxury stores open until 11 pm but given an average transaction size of more than $2000 and a product gross margin at 70% or higher for most goods, just one sale is going to more than pay for a handful of hourly store employees to stay a few extra hours. I’m not sure why they closed early in prior years, but the math probably works to stay open for these stores, much more than it does for thinly trafficked retailers selling $40 items at a 35% gross margin. But it is interesting that it was this year of all years, when things are slowing down in luxury, that these stores took the possibly déclassé plunge of catering to 10 pm shoppers. Also notable, while Louis Vuitton stayed open until 11 pm, sister company Tiffany still closed around 9 pm.
I didn’t get into hardlines with these checks (other than Apple) but surfing e-commerce sites told me that discounts were aggressive for things like TVs and appliances, which isn’t surprising, given the weakness in big ticket purchases that we have seen all year. Also, I think a lot of hardlines retailers are still heavy on inventory, heavier than the better managed apparel and footwear companies are, for sure.
Winner, Winner, Chicken Dinner of Black Friday Goes to…
Uggs (DECK).
There was literally nothing on sale in this store, yet it had the longest line in the mall to get in. Even during dinner time – they were still waiting.
And employees had to put a sign outside the store listing all the items that were sold out so prospective customers wouldn’t wait on the line for nothing.
I’d make some analogy to Cabbage Patch Dolls here, because it feels a little like that with the sellout sign, but that would be criminally unfair to Uggs, which have been accused of being a fad for about two decades now. This brand sometimes gets hotter and sometimes colder… but it is clearly en fuego at the moment. But we should just lay the fad thesis to rest already.
Red Flags, Buyer Beware
Peloton (PTON) had 50% off all apparel and $500 off the Bike+ (20%), $350 off the Original Bike (24%), $300 off the Tread (10%), and $250 off the Rower (8%) … yet no one in the store the three times I walked by. I didn’t take a picture for you because I felt bad for the three people working there.
It’s Thursday now. It’s been six days, and most companies have halted their Black Friday/Cyber Monday offers. But Peloton is still running these deals.
Summing It All Up
It was a good, not great, Black Friday. We had an early Thanksgiving this year, which leads to an unusually long number of shopping days, 31, between Thanksgiving and Christmas, which on the one hand is an opportunity for stores, but on the other hand, could lead to a lull in activity in December, which might cause some retailers to hit the panic button on discounting.
There is very wide dispersion in inventory positions and product appeal in apparel and footwear, and I expect wide dispersion in stock performance to follow.
More Black Friday Reading
17 of the top-selling items on Amazon during Black Friday and Cyber Monday
AboutAmazon.com, 11/28/2023
Two words: Snail mucin. It’s for your face. Really. And this is the second time I have been told about this (the first time was by a friend a few months ago). I’m on the sidelines for snail mucus, neither long nor short.
Some Interesting Things I Read Recently
Instagram’s Algorithm Delivers Toxic Video Mix to Adults Who Follow Children
Wall Street Journal, 11/27/23
I wrote about brand safety last week in the context of Twitter. Now it is rearing its ugly head at Instagram, particularly on its Reels product, which has been a big growth driver for Meta Platforms (META) this year. I doubt this changes their growth profile or prospects in the short-term or long-term, and Meta is probably scrambling to address these issues, which keep popping up. It’s a reminder of the societal downside of targeting by algorithm, machine learning, and AI.
The Great Disconnect: Why Voters Feel One Way About the Economy but Act Differently
New York Times, 11/20/2023
An article primarily about politics, but it gets at an issue that many on Wall Street struggle to understand… why do people say the economy is terrible nearly all the time now, even when it’s not. And if people truly believe the economy is so terrible, why do they keep spending so much money?
What did you buy on Black Friday/Cyber Monday? And would you put snail mucus on your face, if you thought it might make you look better? 😊 Let me know in the comments.
Prosperous Investing!
Disclaimer: This content is for informational and educational purposes only and does not constitute financial advice or a recommendation for a particular investment.
Disclosure: The author may have a personal financial interest in the securities mentioned. At the time of publication, personal investments included AMC (short), AAPL, BBWI, and META.
Berna, your content and especially the last 3 pieces are just terrific. Thank you.
I’m just an individual investor with a day job, but for what it’s worth, yours is the best long-form retail/consumer focused analysis I’ve come across. (I like Jeff Macke’s Twitter insights too.)
Hi Berna! Wanted to dig into your comment on vegan leather being a trend, with an unclear origin. Isn't this a sign that consumers are becoming more concerned about climate change? Cattle are a major source of greenhouse gases, and as climate change becomes a bigger issue and consumers become more educated about the causes, they are demanding more alternatives to beef and leather. You might have a different analysis, however, which is why I'm eager to dig in. Thanks!