It’s Thanksgiving Day, the turkey has long been gone and the pies have finally stuffed you up. After spending some time with the family, you go to bed early and set your alarm for 5am like many other Americans, but why? Americans have grown to love Black Friday, as they seek “amazing” deals and participate in early Christmas shopping on what is considered the beginning of the holiday season. But this year you shouldn’t go shopping on Black Friday.
While it may seem like Black Friday is a day for the consumers, it’s not. Black Friday is a day for retailers to make money. A day that they go from the red into the black. Retailers offer “amazing” deals on a few high priced items like TV’s or IPads to entice consumers into their stores. While they do lose money on these deals, retailers use smart floor plans to steer consumers to products that are more profitable. Retailers then use the JC Penney pricing model, in that a product that would normally sell for $75, will have its listed price raised to $100, but there will be a sale for 25% off that drops the price back down to $75. These fake sales are there to make consumers feel like they are getting a good deal on the product, but in reality the retailer is.
Black Friday allows retailers to price discriminate and therefore make more money. Price discrimination isn’t based off of race or sex, but is based on the idea that consumers have different amounts they are willing to pay for a certain item. Price discrimination allows the retailer to sell an item to consumers at different prices. Say a retailer is selling an Xbox One to two different people. One is a working mom who values the Xbox at $250, the other is a CEO who values the Xbox at $350. The retailer could offer a few Xbox One’s for $250 but keep the online price at $350. The mom wanting the Xbox for her kids will wait in the long lines and buy the Xbox at $250. The CEO on the other hand will just buy the Xbox at the $350 price as it is not worth it to him to wait in line for the cheaper price when he values the Xbox at $350. If you are the mom in this example then it is worth it to battle the lines for those few great deals, but if you are like most Americans, don’t be pulled into the retailer’s trap.
If consumers truly want to save the most money they should wait until mid to late December to buy Christmas gifts. This is because of retail inventories. Before the holiday season and in particular Black Friday, retailers have high inventories of goods. If consumers wait until after Black Friday and even mid-way through December retailers will have some items that didn’t sell as much as anticipated. This higher than wanted inventory will result in a real decrease in price to reduce inventory and real savings for consumers.
If consumers want to save the most, they should actually wait until after Christmas to buy goods. Most retailers have their fiscal year (meaning the year a company uses for tax and financial purposes) end on or around January 31st. Retail company’s want to have very low inventories at the end of the fiscal year. In order to reach low inventory, retailers will sell goods for even lower prices as it is more beneficial to have the low inventory than to make the highest possible profit. So why go shopping on Black Friday, when you can save more by waiting till mid-December or even until after Christmas.
Then there are the reasons beyond money to not shop on black Friday. Every year somewhere in America people die as a result of being trampled on during black Friday. People too eager for deals are willing to do almost anything to be the first in a store. The unruly crowds combined with potential freezing temperatures is reason enough to stay inside, but consumers should also consider the effect Black Friday has on the people forced to work. Many retailers looking to entice even more customers have started opening on Thursday night, forcing their workers to come in on thanksgiving and be away from their family’s on a national holiday. So if you are going to shop on Black Friday, at least do not go on thanksgiving night.
Even with everything I have said the best reason to not shop on Black Friday is the simplest one. Gift Cash. It is the easiest and most efficient gift to give someone. The famous Economic paper “The Deadweight Loss of Christmas” shows that for a gift costing $100, the recipient only receives only $70-$90 of the value. This means that giving a gift destroys up to a third of the value to the recipient. Giving cash also allows the recipient to benefit on the cheaper prices of goods after Christmas, allowing them to receive even more value from the cash.
So why not avoid the long lines and cold weather of Black Friday. Spend some more quality time with the family and even gift them some cash for Christmas, they will be able to buy anything they want for even cheaper than you would have before Christmas.