Black Friday shoppers are the worst customers

After we finish our Thanksgiving dinners, millions of Americans will participate in a relatively new phenomenon: hunting for Black Friday bargains on Thursday.

Why bargain hunters would spoil their holiday with such after-dinner "entertainment" is understandable. Some just love shopping; others are looking to score a big ticket item at a lowball price.

Why retailers go all in on Black Friday is another matter. Black Friday, our analysis shows, is bad for business.

Holiday Shoppers Seek Out Deals On Black Friday
Spencer Platt | Getty Images
Holiday Shoppers Seek Out Deals On Black Friday

We surveyed about 10,000 U.S. consumers in the first two weeks of November. More than half said Black Friday is a bad idea and they have no plans to shop that day. They will stay out of stores.

The vast majority of households, our online survey showed, have fixed their holiday spending at last year's level. That's $988 per household on average, with a median spending budget of just $500, according to our research. They further say they will be shopping to a "list" – key items chosen in advance by friends and family. The amount of true impulse buying will be minimal.

Consumers remain nervous about the economy. Most people feel insecure and are trying to increase savings. They want cash for a rainy day. The Great Recession taught them there's no such thing as too large a cash reserve. It doesn't matter that interest rates are low, gas prices are cheap and the unemployment rate is at 5 percent. They tell us they are worried about the future.

If some of these consumers get in line on Friday and buy a big-screen TV as the "family gift," that's pretty much the end of the budget. Moreover, they'll buy that TV at close to break-even or below cost with manufacturer rebates.

Consumers can probably buy that same television on Saturday for $20 more. They can probably buy it just before Super Bowl Sunday for the same price. They may even get a newer model with 2016 features.

For manufacturers and retailers, Black Friday, despite what you have read, is anything but a profitable sales day. Most sales during the year, and especially on Black Friday, drag down profits.

In fact, a small minority of loyal customers directly and indirectly drive the bulk of sales and a disproportionately high share of profitability. These "apostles" sing the brand's praises and will encourage their friends, family and colleagues to give their favorite brand a try. These consumers typically buy without discounts and do so year round.

Black Friday door busters are usually loss leaders — below-cost sales intended to lure customers into the store in the belief that their other purchases will tip the balance toward profitability. Our data say this is wishful thinking.

When retailers stretch like this to pick up Black Friday shoppers, they often lose money. The people lining up for the extreme bargains go from store to store. They're cherry pickers. They're looking only for bargains.

A better strategy for retailers would be to cater to their loyalists. Identify them and attempt to understand them. Provide them with superior service. Make it even more likely that they'll recommend you to friends and relatives.

The truth is that few apostles will be in stores at 2 am Friday. At that hour, sales people will outnumber customers in most stores. And the sales people will not be glad to be there. They may be earning overtime, but they've been yanked out of their homes and away from their families; it's a hard tradeoff. Retailers would be better off running normal store hours and turning their sales people into disciples on the floor.

Despite the media hoopla, the number of Black Friday shoppers and the dollar volume of sales have been declining for several years. It may be the theoretical day when retailers tip into profitability, but that's hard to imagine since so much of what is sold is sold below cost.

Our advice to retailers is to forget Black Friday. Black Friday shoppers are your worst customers. Fire them and concentrate instead on your best customers.

Commentary by Michael J. Silverstein, a Chicago-based senior partner with The Boston Consulting Group and coauthor, most recently, of Rocket: Eight Lessons to Secure Infinite Growth (McGraw-Hill, October 2015).