Black Friday: Making it up with Volume

Every year, the stories about "higher sales volume on Black Friday means good news for retailers" meme spouts forth.  All the big media outlets bow to the advertisers funding their operations, speaking of how the sales volume makes or breaks Christmas for retailers.

Given the deep discounting going on, I wonder how reliable this is.

You see, gross sales is not a valid measure of profitability.  It's the old (somewhat updated)  joke of the two MBAs who get a big wad of venture capital to sell fresh produce.  Their plan is to buy cabbages at $0.50/lb and sell them at $0.25/lb.  One of their investors asks "How will you make a profit if you lose money on every sale?"  "Oh" replies one of the MBAs while collecting his bonus check, "We'll make it up through volume!"
(more below)

This year, despite all the other gloomy predictions, we're only seeing subtle hints that the deep discounts used to bump up the "Black Friday" shopping spree isn't an indication of big profits for retailers:

Bargains Draw Crowds, but the Thrill Is Gone
New York Times
By MICHAEL BARBARO
Published: November 24, 2007
American consumers flooded stores yesterday on the traditional first day of the holiday shopping season, but the irrational exuberance of the Black Fridays of the last five years has been replaced by pragmatic restraint.
...
Stores left nothing to chance, opening their doors before dawn and cutting prices deeply enough to guarantee throngs of bargain hunters.
...
Rather than buying on impulse, consumers drew elaborate shopping plans to track down steep discounts — and stuck to them.

Ever since the Reagan years, companies have been using a simple business plan: increase profits by laying off US workers, moving production offshore to cut labor costs, and selling large volumes of discounted products to US consumers.  The problem has always been obvious: laid-off workers don't make enough money to keep buying things.  Once enough workers have lost their high-paying jobs and run out their credit lines, sales drop off.

One wonders whether the next step in the plan is to gut US environmental and labor protection laws, and then move their factories back to the US to exploit cheap US labor and weak labor and environmental protections while selling discounted goods to China.

•  Alms for the poor

  Or not...

  by RepubAnon on Sat Nov 24, 2007 at 10:31:15 AM PDT

•  Thousands of people

  here in Massachusetts waited for one of the malls to open at midnight after Thanksgiving. It was hyped on the local news as a fantastic day for merchants, but as you said, the stores drew people with deep discounts.

  Polls show that the mood in America is grim and that many Americans are afraid of where the economy is headed. Not exactly the right mood for extravagant Christmas shopping.

  Good diary. I hope it gets the attention it deserves.

  by Ekaterin on Sat Nov 24, 2007 at 10:40:16 AM PDT

•  Black-Friday sales are lackluster.

  because middle-class and lower-class Americans don't feel secure about their financial future. For the last 8 years disastrous republican administration and do-nothing congress embraced failed economic/trade policies of free-trade and free-market due to the pressure from neo-cons.
  If America wants to continue enjoy the # 1 position in the world, then these failed policies must be abondoned.
  If America wants to continue enjoy the # 1 position in the world, then the outsourcing of hard-working middle-class and lower-class Americans' manufacturing jobs to cheap-labor and no-quality China must stop.
  If America wants to continue enjoy the # 1 position in the world, then the outsourcing of hard-working middle-class and lower-class Americans' technology and service jobs to cheap-labor and no-quality India must stop.
  If America wants to continue enjoy the # 1 position in the world, then America must enforce equal/fair/balanced tax system on all of it's citizens. Today middle-class and lower-class hard-working Americans pay 30% of their incomes as taxes, whereas rich and uber-rich Americans pay hardly 14% of their incomes as taxes. Taxes on rich and uber-rich Americans must be increased and taxes on hard-working middle-class and lower-class Americans must be reduced.
  If America wants to continue enjoy the # 1 position in the world, then middle-class and lower-class Americans must be paid fairly and they must be given deserving benefits. Today any business's management gets multimillion dollar bonuse at the same time rank-and-file employees are denied well-deserved salary hikes and benefits.

  by timweisman on Sat Nov 24, 2007 at 10:58:03 AM PDT

•  Didn't See the Volume

  For my part, I spent Blank Friday driving north from LA to Santa Barbara and while passing many shopping malls did not see anywhere near the traffic that I usually do.  Haven't seen the stats, but I'd say that volume is way down this year.

  by gobigblue on Sat Nov 24, 2007 at 12:42:35 PM PDT

•  Crowds

  Here in Michigan, there were significant early morning crowds. I know because I was one of them. While there were large crowds, it did look like many were targeting the deeply discounted items(no shocker there). A better indicator of how things are going will come from data showing numbers for the entire weekend.

  by pointman on Sat Nov 24, 2007 at 12:50:45 PM PDT