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first day of the holiday shopping season, but the irrational exuberance of the Black Fridays of the last five years has been replaced by pragmatic restraint.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.