How Retailers Trick You with Their Amazing Black Friday 'Discounts'

The battle over whether it's smart or evil to shop on Black Friday is kind of the Gettysburg of America's hyped-up War on Christmas.

The battle over whether it's smart or evil to shop on Black Friday is kind of like the Gettysburg of America's hyped-up War on Christmas. Those against shopping on the day after Thanksgiving point to everything from the crowds to the day's glorious celebration of consumer consumption, to the worrying trend of Black Friday creeping into Thanksgiving Day itself. Those in favor of subjecting themselves to the shopping obstacle course point to the deeply discounted items as the biggest reason to indulge. But The Wall Street Journal would like to dump a bit of cold water onto the spirit, if not the substance, of those Black Friday price cuts by diving into the open secret of the shopping day's "retail theater."

Here's how most people think Black Friday goes: products have "normal" prices. Those prices reflect what the retailer is wishing and hoping and praying to get for that product. The Journal gives the actual example of a sweater purchased from a supplier for $14.50, and sold for about $50 in the store. $50, a 70 percent markup, is the "normal" price. Then, there are "sale" prices, where you, the smart sale shopper, buy the product for a bit less than that normal price. In the Journal's example, the sale price is $44.99. And then there are Black Friday sales, where the discounts are even deeper, the sort of deal you'd proudly mention in a post-shopping victory monologue. For the sweater, the victory price is $21.99. But that is a lie. Not the prices — those are real. The lie is how you perceive it.

As it turns out, many retailers actually work backwards. It makes more sense to think of the "full" price as a mark-up, an anti sale, where only a few consumers will bite. The sale prices are, more or less, the product's normal price, or the price at which retailers expect to see the product move off the shelves. Instead of discounting products in order to clear languishing inventory at the last minute, retailers work on maintaining an average sale price for an item, which will be much lower than its full price. The sweater mentioned above sold mostly at the deeply discounted price, with some sales at the first discount, and just a relative few buyers going for the product at full price. This means that its average purchase price came out at $28.

That's not the only mental game going on, either. Retailers use a bunch of different tactics to make those Black Friday discounts seems as deep as possible, including slight mark-ups on the "normal" price in the days before the holiday weekend. Last year, The Wall Street Journal tracked an 8 percent rise in prices for about a fifth of the 1,743 products they tracked just before Thanksgiving. The pre-sale prices of toys and tools rose an average of 23 percent before Black Friday. To make things even more confusing, some retailers have started advertising "early" deals branded as part of the store's big Black Friday sale, even though those deals aren't really that great. Earlier this month, Nerdwallet looked at a handful of advertised Black Friday sales and found that many of those "deals" are the same as last year's — or worse, the same as or skimpier than product discounts available at other times of the year. 

Over the years, this practice has expanded, and retailers can get away with it as long as it looks like the product is up for sale at a "full" price for "a reasonably substantial period of time," according to Federal Trade Commission regulations. Retailers have to be careful, however, not to be too deceptive here. They could become legally liable in court if their sale advertisements misstate the "normal" or "original" price of the product.

Nonetheless, the practice has gone pretty far in recent years. The Journal gives a classic example from former JC Penney CEO Ron Johnson:

In a 2012 presentation, Mr. Johnson, then still Penney's CEO, said the company was selling fewer than one out of every 500 items at full price. Customers were receiving an average discount of 60%, up from 38% a decade earlier. The twist is they weren't saving more. In fact, the average price paid by customers stayed about the same over that period. What changed was the initial price, which increased by 33%.

Johnson actually saw that as a bad thing, and tried to nix the perceptual discounts practice at JC Penney. He wanted to offer "everyday" lower prices on products as a matter of course. But consumers are now more or less trained to discount shop and Johnson's strategy famously failed, costing him his job.