Mellody Hobson is president of Ariel Investments, a Chicago based money management firm, and a nationally recognized voice on financial literacy and investor education. Hobson is the featured consumer finance expert on Tom Joyner’s “Money Mondays” radio program, where she recently discussed Black Friday shopping. Here is the transcript from that discussion:
The holiday shopping season is about to officially kick off. I am told you are with us today to dispel some myths about the big sales that start this Thursday, is that right?
Every year, shoppers get excited for Black Friday sales so they can snag the best deal on that must-have toy or the newest gadget. But before our listeners get ready to ditch Thanksgiving or camp outside of the local mall, I want to get to the bottom of a few common questions, like “Whether the deals worth it?” and “Are the best prices online or in-store?”
Are these actual sales, or are they a big promotional scam?
I would not go so far as to say they are a scam, but in many cases they aren’t all they are cracked up to be, either. Two things stick out here that might make you rethink depending on them entirely. First, the premise that many shoppers believe that this is built on — that this is when retailers go into the black and can now discount inventory to get rid of it — is mostly false. In fact, while most shoppers assume the deals are a result of too much inventory, the prices are set with the discounts built in.
The Wall Street Journal reported that while the number of “deals” offered and the average discount have risen significantly at major retailers since 2009, profit margins remained virtually unchanged. The Journal looked at the gross margins of companies offering these discounts and found that during the holiday season, margins hovered around 27.9 percent — margins for the quarter before the holiday season were at 28 percent, and only dipped as low as 27.8 percent in the fourth quarter, despite the “discounts” offered during the holiday season.
Second, the big doorbuster items — whether it is flat screen TVs or video game systems — are often incredibly rare and are designed simply to get you to the store and primed to shop. A study by USA Today learned that for every 300 people in line outside a store on Thanksgiving night or early morning on Black Friday, the store only carries six of the advertised products. Just make sure you are taking these sales with a grain of salt.
Good to know that the sales are not scams. But others say they are always the same. Is that true?
That depends on how you look at it. There is certainly a pattern here in terms of what items retailers are selling — obviously electronics and toys are huge during the holiday shopping season — but retailers do adjust their strategies and change up the sales depending on their circumstances. For example, there can be different promotions between the products available online, which are usually a much larger offering, and the products available in store, which may be more difficult or expensive to ship.
Now that we know that, when do the sales actually start?
A great question, and one that has a different answer depending on the year. Over the last few years, we have seen a trend toward starting the holiday shopping season earlier and earlier, with pressure from online retailers like Amazon pushing traditional stores to fight back by making the season longer. That trend seems to have stalled this year. While we have seen plenty of stores start promoting their holiday sales very early this year — Walmart started hyping their Black Friday sales in September — we have seen retailers rethink moves to push sales earlier this year.
Final question: Where should we look for the good deals this year?
Well, I won’t name names, but I will point out something that may take some people by surprise. Many believe that the best deals are always online, while others think that they are always in store. And depending on the company, that may have held true in years past. However, as traditional brick-and-mortar retailers get better at their e-commerce approach, it is going to be a combination of the two.
For example, Walmart opens its online Black Friday sales at midnight the night before Thanksgiving, but it only opens its stores at 6 p.m. That time difference may mean that the best deals on any given item may be online at one time, and in store at another. The best thing you can do is research what you want, and ignore some of the traditional Black Friday myths that have built up over time.