Back in black

 

Will 2017’s Black Friday help put channel retailers back into profitability?

“The decorations go up earlier every year.” It’s a refrain you’re likely to hear at some point in September, October or November about retailers’ preparations for the festive period. However, South Africans can now start adapting that annual complaint to apply to the length of Black Friday, which is quickly sprawling from a single day to a long weekend – factoring in 'Grey Saturday' and 'Cyber Monday' – and even to a week-long event for some retailers.

What’s amazing is that just five years ago only a couple of online retailers were looking at the massive sales opportunity that Black Friday represented. Takealot was one of those pioneers.

“In 2012, we did about R1 million on our first Black Friday,” says Kim Reid, founder and co-CEO. “We started it as a marketing event, because we wanted to grow online commerce locally. It seemed to be doing well in the US.”

However, it’s in the past two years that Black Friday has really gained momentum. In 2015, Takealot generated R17.8 million in revenues on Black Friday alone, although, as Reid admits they faced challenges as the site became unstable after being overloaded with users and transactions. While the site’s stability was improved in 2016, it faced further challenges due to BankservAfrica’s payment systems going down; that said, the revenue figure tripled from the previous year to R56 million.  

In fact last year, is arguably when the Black Friday trend really changed up a gear for retailers across the board.

“In 2015, we had a reasonable response,” says Nazim Cassim, MD, DionWired. “But, in 2016, we saw a quadruple impact with almost the entire prior year’s sales for the quarter shifting into just one week. Black Friday week was singularly our largest turnover week last year,” he says.

“Retailers were actually surprised about the outcome of Black Friday last year,” adds Roger Carbonell, commercial director, sub-Saharan Africa, GfK. “It was a gamble, as no one knew how it would work for non-online retailers. Retailers went out in full force.”

Reid agrees that the impetus growing the event was because the bricks and mortar retailers got involved. “If it was only online, it wouldn't be as substantial as it is today,” he says.

What does 2017 hold?

In spite of the tough economy (and the rumoured national credit ratings downgrade) all the signs are that 2017 is set to be the biggest yet.

“This year our forecasts are between R80 million to R130 million,” says Reid. “We think it’s going to be a bumper Black Friday. Retail in general is getting behind it.”

Cassim adds that fiscal austerity might actually spur the retail success of the event. “I think that the tough economy has equally been a factor pushing consumers to save their purchases to Black Friday,” he says.

Carbonell adds that a number of companies were paying employees a day early, at the recommendation of the banks, to help spread the load on the banks and the payment systems.

The channel players that The Margin spoke to were also preparing their processes and systems to cope with the surge in demand. Chris Buchanan, director: Client Solutions, Dell, says that online retailers would need to look to scale up the capacity of their sites for the short period, as this was far more feasible than buying the infrastructure specifically to service the surge demand of Black Friday. 

A retailer’s support staff complement also needs to increase to meet demands. Reid says the staff complement in Takealot’s warehouse and call centre increase by 10% to 15% over the December period.

To return to the beginning of this piece, Black Friday isn’t just one crazy, deal-filled sales day. It’s fast-becoming the kickstart to the festive sales period, as it is in the US where Black Friday originated.

“It’s less about Black Friday and more about the season, which is from October to December,” says Reid.

Buchanan agrees that the fourth quarter of the year is vital. “If we haven't made it by this time we're in trouble,” he quips.

Concerns that Black Friday would cannabilise Christmas sales also seem unfounded, according to Carbonell. As an example, he cites the panel TV (LCD /OLED) segment, which in the week of Black Friday doubled its percentage of sales for the year from 2.7% in 2015 to 5.3% in 2016, becoming the strongest week of the entire year. When combining sales from the Black Friday and Christmas weeks, this grew from 16.2% of the annual sales in the two week of 2015 to 19.8% for the same two weeks in 2016. “Black Friday started the shopping period earlier. It didn't cannabilise the period, it actually added value,” he says.

The increased traffic into the physical and web-based stores can be seen as one key reason for the increased value of the Black Friday sales. Once there, customers can be cross-sold to, says Carbonell. “Selling them an upgrade isn't necessarily in the same product, it can be an accessory product, such as a soundbar to go with their new TV,” he adds.

Reid agrees that the day adds value, saying that Takelot’s original adoption of Black Friday was to drive ecommerce in the country. He says now the average orders have grown from 1.4 items per order back in the early days to 3.2, and expected to reach 3.4 this year.

Black Friday also adds value to the bottom line in that it’s not just about selling cheap items. “Last year, Black Friday was able to rise the average transaction price in the TV market,” says Carbonell. “It had huge price drops, but at the same time the more expensive products got promoted, so the total market for higher price points grew.”

Will Black Friday continue to grow? Given the promotion we’ve already seen, and the value it’s been giving retailers by kickstarting their December sales period it’s highly likely. Black Friday will remain a staple in the retail calendar for many years to come.

* As of 8:40am on Friday morning, the site Takealot was down. A message on the site said "Sorry, our store is full right now. There are so many customers shopping, we can't squeeze everyone in. Please be patient and come back in a few minutes."

A message on the online store's Twitter account said: “A fundamental service within our platform has failed, which caused site-wide problems across Takealot.com. We seem to have found the problem and are busy working through a backlog of orders right now. Once we’re in a more stable state, we’ll be back online."