Not So Fast - Colleague Warns Not to Get Too Excited Over Black Friday Results

In discussing last week's posting about the success of Black Friday, colleague Peter N. Schaeffer, partner, Carl Marks Advisory Group LLC, warned about getting too excited about the recent results and mentioned his recent newsletter written about the topic. I thought I would share the article with you.

Strong Black Friday sales propelled retail results for November and put retailers and retail investors in giddy moods as visions of sugar plums and hefty sales figures drove stocks higher. Don't be fooled by four days of intense markdowns, record-breaking advertising, dramatic press coverage and, for the first time, the use of the "Black Friday" moniker in most advertising and news reports about the weekend.

Of course, the malls were mobbed. Christmas is less than a month away, and if you were willing to rise at 3 a.m. on Black Friday, plenty of good deals awaited you. Shoppers always pack the malls on Black Friday and the weekend that follows. Our friends in Canada look on with envy at the United States because of the "official" start to the shopping season on the day after Thanksgiving. The rest of the world does not have this shopping delineation and realizes the value of an official start to the holiday, which encourages spending and concentrates advertising and promotions to a tight window.

There is no escaping the fact that sales were strong and certainly encouraging, but let's not forget the margin implications of the radical markdowns and the fact that many people use the holiday weekend to do most of their seasonal shopping. Just how much money remains to be spent is the big question, and will this number propel sales higher than the anemic results of the past two years?

Looking at same store sales results for November, one is struck by the number of retailers with positive numbers. This is in contrast to major negative results in 2008 and 2009. Yet, most retailers are quick to forget what numbers they actually are beating. For example, Abercrombie & Fitch had stellar results for November, with same store sales rising 22 percent. However, last year A&F's same store sales dropped 17 percent, and in 2008 they dropped 28 percent. It's amazing how once A&F learned to promote itself, sales went up. But, if you look at its same store results over the past three years, the company is actually doing only 73 percent of the business that it was doing in 2007. Obviously, the numbers are not entirely accurate due to store closings and other factors but still reflect the sad fact that many retailers have lost significant business over the past several years.

Some of this loss has moved to the Internet, where record sales are made daily and sales penetration is eroding results of the brick-and-mortar stores. This year, the proliferation of free shipping, by just about everyone on the Web, will impact Web margins which, in the case of brick-and-mortar stores with strong online businesses, already reflect the sale prices available in the stores.

Reports from the field regarding sales this past weekend were mixed but generally soft. There is no indication that Black Friday's strong showing is continuing. With the exception of the luxury sector, it looks as though 2010 results will be better than 2009, but not by much. The luxury sector continues to outperform as wealthy patrons are less intimidated than they were last year and are returning to their favorite retail haunts. In addition, solid results on Wall Street and the weakened dollar have propelled luxury sales in New York, which can affect total sales due to the size of the New York market.

We don't want to be Scrooge and ruin the holidays with dour comments and a bleak outlook, but don't be naive and believe all that you read, because the retail economy isn't nearly as good as it seems.