Black Friday, the Game

I won't be among the millions of shoppers hitting the stores on Black Friday (which is increasingly reaching forward into Thanksgiving Day). Many shoppers will exchange sleep for a chance to be among the first customers into stores and onto websites in search of holiday shopping Nirvana.

This Wall Street Journal article explains that the whole Black Friday marketing scheme is nothing more than "retail theater." But it is obvious that many shoppers love this kind of entertainment.

In the ancient days retailers sold most products at list prices. Discounts were used solely to clear unsold items from store shelves to make room for new inventory. While clearance sales still occur, the old pricing paradigm "began to change in the 1970s and 1980s, when a rash of store openings intensified competition and forced retailers to look for new ways to stand out."

Retailers began working with suppliers to list products at prices higher than their actual expected sales prices. To comply with trade regulations retailers kept a high price long enough to establish a base price before discounting to a secondary high price and then dropping to a "steeply discounted price," which was the true expected selling price. The fact that retailers managed to snag some shoppers at high markups made the practice legal. The idea was to generate shopper enthusiasm.

Retailers used to limit this tactic to a smaller subset of merchandise. But shoppers have responded so well that this methodology has expanded to the majority of retail offerings. Moreover, retailers jack prices up in the weeks before Thanksgiving to achieve even higher holiday discounts.

Despite all of the discounts, retailers end up selling most products at the same margin throughout the year and most shoppers end up paying the same prices throughout the year. List prices and discounts have both increased dramatically in recent years while actual sales prices have remained static. But retailers believe that shoppers will buy more under the discount sham.

Retailers also use loss leader sales, offering limited numbers of select products at a loss or a very low margin to entice shoppers on Black Friday. It is these kinds deals that result in shopping combat injuries, since shoppers know that supplies are limited. But the WSJ says that retailers engineer most of these "deals" with suppliers so that they still earn regular margins. Meaning that even the shoppers that get these deals aren't really getting that great of a deal.

Dear shoppers, you are the fish, the retailers are the fishermen, and the faux discounts they offer constitute the power bait that is so successfully employed to hook you. But you apparently like it.

Theater can only be enjoyed when the audience is willing to suspend their disbelief of the fantastical elements of the production. Everyone knows that list prices are a sham. Or, as the WSJ article puts it, retail prices have lost their integrity. But shoppers don't care. They like playing the game retailers are offering. They are willing to temporarily believe in the integrity of retail prices to feel like they have won the discount game.

Retailers can't opt out of this system. When J.C. Penney tried offering everyday honest pricing shoppers punished them for it. Penney now has a new CEO that is aggressively pursuing the faux pricing model. Shoppers are in essence telling retailers that they like the discount game so much that retailers that refuse to play will ultimately go out of business.

Many sports enthusiasts will be satisfied to watch football on Thanksgiving. The following day many shoppers will eagerly engage in the real contact sport of Black Friday shopping, not content to be mere spectators. They are excited to get on the game grid that retailers have spent months preparing. All I can say is, have fun and try not to kill anyone.