Black Friday Darkens Prospects for Brick-and-Mortar Retailers

Chunka Mui
Black Friday Darkens Prospects for Brick-and-Mortar Retailers

Black Friday is poised to heighten the gloom for many brick-and-mortar retailers. Stepped-up efforts to lure shoppers into stores will result in massive one-day sales, but they will also propel the industry further towards strategic blunder. By fighting an internecine battle to outdo each other’s Black Friday stampedes, brick-and-mortar retailers are playing to the strengths of their real competition—online retailers—while collectively eroding their own key differentiation—the consumer shopping experience.

Black Friday is going to be the darkest post-Thanksgiving sale event yet. Rather than starting in the pre-dawn hours, many stores and malls will open at midnight. Others, including industry leaders Walmart, Target, Best Buy and Macy’s, will push the battle into Thanksgiving Day. Research conducted for the National Retail Federation estimates that 77 million US consumers—almost a third of the total—are “definitely” planning to shop that day. The study also estimated that another 74 million consumers will consider going shopping as well, depending on the strength of retailers’ offerings.

On the strength of such estimates, it would be hard for any retailer to unilaterally decline to participate. Best Buy, which had previously resisted joining the midnight party, has relented. As reported in the New York Times:

Brian Dunn, the chief executive of Best Buy, said that the midnight opening “became an operating imperative for us” after competitors moved their openings back.

Dunn added that he felt “terrible” about the change.

Even J.C. Penney, which holds itself out as a model of restraint, will open at 4am Friday. “We wanted to give our associates Thanksgiving Day to spend with their families,” Bill Gentner, senior vice president for marketing, told the New York Times.

But for the industry as a whole, Black Friday is another step towards mutually assured destruction.

Consider what Ron Johnson, who orchestrated Apple’s hugely successful retail store effort until his recent departure to be CEO at J.C. Penney, had to say recently about his online competition:

Think about the online experience today. What online does best is compete on price and, depending on your circumstances, convenience. That doesn’t create new value. It’s a race to the bottom—the lowest cost and fastest fulfillment.

From Harvard Business Review

Sound familiar? Black Friday is the brick-and-mortar retailers’ attempt to compete on price—but without the lowest cost. Unless they are careful, brick-and-mortar retailers run the risk of winning the race to the bottom.

Johnson, who now faces the challenge of crafting J.C. Penny’s strategic response, believes that there is ample hope left for traditional retailers. In order to succeed, however, he told HBR,

A store has got to be much more than a place to acquire merchandise. It’s got to help people enrich their lives. If the store just fulfills a specific product need, it’s not creating new types of value for the consumer. It’s transacting. Any website can do that. But if a store can help shoppers find outfits that make them feel better about themselves, for instance, or introduce them to a new device that can change the way they communicate, the store is adding value beyond simply providing merchandise. The stores that can do that will take the lead.

I doubt that Brian Dunn and other brick-and-mortar retailers’ CEOs would disagree with Johnson’s prescription. Unfortunately, their plans for Black Friday, the biggest shopping day of the year, run directly counter to it.

Black Friday trains consumers to shop on price, and to do it while having the worst in-store shopping experience possible.

It also plays to the strength of the online competition, and opens the door to a competitive counterpunch where online stores can credibly claim to offer both lower prices and better shopping experiences. Imagine this marketing message:

Why stand in that Black Friday line when you can get a better price online? Pick out what you want at the store, if you must. Just order it with your phone, instead, and then go enjoy the mall. You won’t have to lug the packages around, and we’ll even ship it to you for free.

It is not so far fetched. As The New York Times reported,

As retailers battle to draw customers into their stores on Black Friday, online merchants are plotting a cunning ambush — offering an arsenal of mobile-only deals intended to pick off shoppers as they wait in line.

In previous years, online competitors piggybacked on Black Friday enthusiasm by offering their own deep, Thanksgiving Day discounts on their websites, and then following up with their own Cyber Monday extravaganzas.

This year, they escalate the battle.  Numerous smartphone apps will allow consumers to do real-time price comparison while they are in stores on Black Friday (often, ironically, taking advantage of free, fast WiFi networks offered by retailers and malls). And, to add to the irony, shoppers will get mobile-offers that undercut brick-and-mortar retailers—without undercutting online retailers’ own websites.

The broad shape of what brick-and-mortar retailers need to do is relatively clear, and it has little to do with perfecting Black Friday strategies.

Instead of relying on massive price promotions, retailers need to integrate the virtual and physical retail experience.  They need to build sustainable and strong multi-channel relationships with their customers. They need to translate their dominant in-store contact points with consumers into in-store or online sales, rather than browsing and entertainment experiences. They need to ensure that face-to-face contact with consumers is an asset, not a liability. They need to reduce the efficiency and information gap with online-only competitors to a manageable margin. They need to leverage technological developments in mobile, social and local commerce, as opposed to ceding these capabilities to online competitors.

In the end, as Ron Johnson points out, they have to add value and enrich their customers’ lives, not just provide merchandise­—and they must consistently and sustainably do this  better than Amazon, eBay, HSN and a growing host of other online competitors.

While the broad shape of the required brick-and-mortar transformation might be clear, knitting together the right ingredients to create successful, next generation retailers is far from straightforward. Ron Johnson was able to do it at Apple, contrary to most predictions. It’s arguable, however, whether Apple, with Steve Jobs and his string of killer apps (namely, the iPod, iPhone and iPad) to drive the Apple brand and sales, is anything more than an errant data point in the long-term trend against physical stores.

Only about nine percent of U.S. retail sales are online today, and that number is growing at ten percent a year. Some retailers find comfort in these figures and are putting off the hard work to transform themselves in the face of online competition.

At this rate of growth, however, online sales would reach almost 25 percent in ten years and 50 percent in less than twenty years—if the massive advances in computing power, broadband networks, and mobile devices don’t accelerate the growth rate.

If reality turns out anywhere close to these market share projections, there will be many black days ahead for today’s brick-and-mortar retailers.

What do you think of Black Friday and the future prospects for brick-and-mortar retailers?  Can they change course, and stem the tide?  Please share your comments below.

------

Chunka Mui is the co-author of “Unleashing the Killer App” and “Billion-Dollar Lessons.”  Enjoy Black Friday pricing everyday on these and other works!

Follow Chunka Mui on Twitter @chunkamui