The Downside of All Those Black Friday Sales

Remember last year when everybody flipped out about how the astoundingly huge holiday sales figures proved that the U.S. economy was leaning into a bullish comeback?

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Remember last year when everybody flipped out about how the astoundingly huge holiday sales figures proved that the U.S. economy was leaning into a bullish comeback? Well, thanks to some fresh analysis from America's friends at Goldman Sachs, it looks like that's not the case. Thanks for something, Goldman Sachs.

It turns out that December's retail sales figures were a little weak in general, but for gadgets, they were just plain dismal. Joe Weisenthal at Business Insider notes how the "electronics and appliance stores" saw only a 0.4 percent increase year-over-year, a poor showing compared to the 7.7 percent increase in overall retail sales. Goldman analysts offered this explanation:

The weaker-than-expected retail sales result largely reflected declines in sales by electronics stores and "non-store retailers", which includes online sales. These categories accounted for much of the large increases in October and November, and weakness in December likely reflects a payback (a surge in sales related to the launch of the latest iPhone in Oct, and aggressive promotional activity in November by some electronics retailers could possibly explain this pattern). Department store sales also declined during the month. Other types of sales mostly increased, but contributions were too small to offset weakness elsewhere. The increase in total retail sales reflected a 1.5% increase in auto sales.  

So what this basically means to us is that after Black Friday -- and more specifically, Cyber Monday -- consumers put a lock around their wallets and didn't spend any money on gadgets for the rest of the year.

There are really two things to be gleaned from this realization. One: this is bad news for small shops. Like Apple showed us last October, a flood of buzz around a sale or in Apple's case, the hotly anticipated launch of the new iPhone, leads to some oppressive consequences down the line. Oppressive is the not the right word for Apple; their bottom line is doing just fine. However, for smaller technology retailers, running the risk of selling gadgets at a deep discount to attract new customers and, well, earn money runs the risk of morphing into a self-inflicted Groupon-like disaster of a marketing effort. Groupon's been taking flak for well over the past year -- and its stock price has been sinking sadly so far this year -- for drawing retailers into a scheme whereby they hope to win new customers by basically giving away their products. This can make good sense for loyalty-based businesses like hair salons. If you get a great cut from a great haircutter, chances are you'd be willing to go back for another and pay full price. For convenience-based business like coffee shops, it makes far less sense. People might be willing to run across town to a coffee shop they've never tried before to get a 35¢ latte, but it's not terribly likely that the latte will be so good that they'll make the trek on a regular basis. The fact that December sales figures were down proves that customers didn't return to spend more money -- at least in the few weeks after Thanksgiving.

For the small electronics stores that slashed prices on Black Friday and Cyber Monday, these are telling signs of a daunting trend. Should the oneupmanship of offering the biggest baddest sales on the day after Thanksgiving continue to spiral out of control, mom and pop shops will have a hard time going to bat against the giants that can afford to slice their margins razor thin in order to move a large volume of products. Amazon doesn't really care if a customer come back to buy books or whatever as long as they earned their one penny of profit for selling that plasma TV at a deep discount. (Protip: go for OLED over plasma.) A smaller store that tries to sell that same TV for the same price would very much appreciate it if that customer came back and bought more TVs or more of anything. Because the whole point of sales is winning customers, not losing money.

The second thing to be gleaned relates to the economy as a whole and problematic interpretations of this year's bonkers sales figures around Black Friday. Americans spend a stunning $11.4 billion on Black Friday this year; it was the biggest shopping day ever, in the history of shopping. However, to zoom back up to 30,000 feet and look at the bad December gadget sales from a macroeconomic point of view, these latest stats confirm a hypothesis The Atlantic Wire's own Rebecca Greenfield made in November. "Strong Black Friday Sales Aren't a Good Sign for the Economy," Greenfield titled a post about how the meaning people would like to read a single day's worth of a surge in sales is not very meaningful:

The numbers themselves don't exactly tell the whole story. Stores reported higher earnings for two reasons that don't have much to do with the economy: Internet and longer shopping hours, as The Wall Street Journal's Dana Mattioli and Stu Woo note. … And just because people showed up for sales on Friday doesn't mean they'll keep it up throughout the holiday season. The last biggest Black Friday, as USA Today's Jayne O'Donnell notes happened back in 2008, right after the economy crumbled. Some indicator that was.

That said, economic indicators tend to be something that economists and Goldman Sachs analysts pay a lot of attention to, but that doesn't mean that it affects every day Americans directly. Nevertheless, the economy is the number one issue in the election this year, and in the name of good journalism and responsible thinking about the issues, we think it's important to drill into news of economic indicators a little more deeply than usual.

So, we hate to be all Debbie Downer, but Black Friday isn't that cool. The lines are too long at the stores; the Internet is full of scams; people are pepper-spraying other people in the face; people are dying -- it's total madness. Now we also know that it's potentially bad for small business, and, of course, it's a misleading economic indicator. Blue Monday, on the other hand, is an occasion we can support:

Image via Shutterstock by Vinicius Tupinamba

This article is from the archive of our partner The Wire.