For me, the controversy around whether employees should work on the holiday obscures a more strategic issue facing these firms. The critical question is: Will opening at midnight actually enhance revenue and profitability? Retailers may find that the earlier opening simply shifts sales from other points in time on the holiday weekend, rather than adding true incremental revenue. Moreover, even if the firms experience incremental sales, they may find that the additional expenses associated with opening at midnight overwhelm the additional revenue. To be successful, these firms must do more than cope with the public relations backlash that they are experiencing. They must generate true incremental revenue, and those sales increases must be sufficient to offset the additional costs that they will incur.
Friday, November 18, 2011
Retailers, Thanksgiving, and Black Friday
For me, the controversy around whether employees should work on the holiday obscures a more strategic issue facing these firms. The critical question is: Will opening at midnight actually enhance revenue and profitability? Retailers may find that the earlier opening simply shifts sales from other points in time on the holiday weekend, rather than adding true incremental revenue. Moreover, even if the firms experience incremental sales, they may find that the additional expenses associated with opening at midnight overwhelm the additional revenue. To be successful, these firms must do more than cope with the public relations backlash that they are experiencing. They must generate true incremental revenue, and those sales increases must be sufficient to offset the additional costs that they will incur.
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6 comments:
Some retail stocks look really undervalued here.
There could be advantage to opening early, or at least avoiding disadvantage, in the case where one company decides to open earlier and you own a similar company. If you don't open earlier, you may cede some of your sales to the early bird competitor. Right?
At what point as a retailer do you take the losses during the holiday times and hope that future profitable business will cover these losses? Wouldn't it make more sense to work the normal hours, accrue the normal expenses, not take losses and actually operate at a profit? What is more important, operating at increased revenue with lower profits or lower revenue and higher profits?
Brian, sorry, should have pointed out that most of the major retailers copied one another with the midnight opening... so there is no advantage for any of them over rivals.
Jim, good to hear from you! I think taking losses might make sense in some situations in hopes of future profits down the line. However, I don't see that rationale here with the midnight opening.
Mike, hope is well! I believe the rationale is the lemming syndrome. One does it and they all follow however the lemmings do go over a cliff......I believe this is a poor business decision in the name of revenue. The retailers rationalize it by stating that they still operating in a poor economic climate so any advantage is worthy. They believe its a win-win. The retailer gets more revenue and the employee still gets paid.
Definitly needs to be coupled with some type of a deal that would make a consumer feel like they need to be at that partiular store at midnight, rather than one of their competitions. Otherwise I would agree the likelihood of running up operating costs could be prohibitive and those same people whould come in at a different point that weekend anyway. I know Walmart in the past has tried to tackle this by having certain deals only at midnight. Usually the pick something big (last year was a high definition tv if I recall correctly) and discounted it only if you were in line and had a ticket for the midnight release. Tickets were distributed in advance, so that you would be less likely to store hop at midnight and Walmart would be the first store you entered even if you did plan on store hopping . I believe Target did a similar program with the tickets last year as well. If you wanted the "big item" there were limited quantities and you had to have a ticket in advance and be in the line when they opened at midnight to get the item, otherwise they sold it to someone else who didn't have a ticket.
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