Black Friday

What is Black Friday and why it is celebrated?

Black Friday is the name given to the day immediately following Thanksgiving. It is one of the biggest annual shopping events in the United States.

Stores across the country offer discounts on a wide range of products to tempt shoppers into their stores. These discounts are also offered in their online stores.

Recently, Black Friday has been joined by other shopping holidays like Small Business Saturday (where shoppers are encouraged to buy from small businesses) and Cyber Monday which is all about online shopping when people go back to work after the long Thanksgiving weekend. 

Black Friday is generally known as the day when retail stores started making profits for the year and is widely regarded to be the biggest shopping day in the US. But the reality is that most stores tended to see their highest sales on the last Saturday before Christmas day.

This day is considered to be the busiest shopping day of the year because it marks the start of the holiday season. 

According to the National Retail Federation (NRF), around 186.4 million people shopped in stores in during the time from Thanksgiving to Cyber Monday in 2020. These shoppers were spending an average of $311.75 over this 5 day shopping period. Upwards of 100 million shoppers partook in online shopping for the very first time during that period and the number of online-only shoppers grew by 44% to 95.7 million shoppers.

On the 15th of January 2021, the National Retail Federation that the retail sales for the 2020 holiday season grew by  8.3% year over year (YOY), reaching $789.4 billion. This was far beyond what the NRF expected. This growth was more than twice the five-year average year over year (YOY) growth of 3.5%

Online and other non-store sales went up by 23.9%, reaching $209 billion.

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Why do they call it Black Friday?

Most people believe that this shopping holiday is known as Black Friday because retail businesses tend to operate at a financial loss (which means they are in the red) till the enormous sales on the day after Thanksgiving finally make it possible for them to make profits (thus putting them in the black). While this does seem like a logical explanation for the origin of the name of the holiday, it isn’t quite true. The name behind the Black Friday shopping holiday has quite a different origin story.

The actual story behind the name ‘Black Friday’ goes back to the early 1960s. During that time, Philadelphia’s police officers started using the phrase ‘Black Friday’ to describe the mayhem resulting from the large number of suburban tourists flocking into the city to get started with their holiday shopping and even attend the annual Army-Navy football game held on Saturday.

These enormous crowds were rather problematic for the police and they had to end up working much longer shifts than they typically did due to the fact that they had to deal with lots of traffic jams, accidents, shop lifting, and many other issues.

After a few years, Philadelphia’s retailers tried to rebrand the holiday to something that seemed more positive and they tried calling the day “Big Friday” to denote the huge discounts and deals offered on that day.

In that late 1980s, merchant’s started putting a positive spin on the name yet again, spreading the narrative of going from the red to the black in terms of profit. This is when this use of the phrase Black Friday to denote a large spike in retail sales started getting adopted and accepted across the nation.
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Why is Black Friday so important?

Black Friday is extremely important because it is the day on which most retailers have made enough sales to put them in the black (make them profits) for the year. A lot of retailers take Black Friday to be vital to their annual performance, which causes investors to take Black Friday sales figures as an indicator of the overall state of the retail industry as a whole. 

On the basis of the  Keynesian assumption that spending drives economic activity, economists tend to see lower Black Friday sales figures as a sign of slowed economic growth.

There could even be an effect on the stock market due to the Thanksgiving and Christmas holidays. Essentially, the markets tend to experience a spike in trading activity and higher returns on the day before a holiday or a long weekend. This phenomenon is known as the holiday effect or the weekend effect. 

If there is a particularly high or low level of sales during the Black Friday to Cyber Monday shopping period, it could have a huge impact or retail stocks, but this impact is generally not strong enough to sway broader stock market sentiment.

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How Does Black Friday work?

The holiday season makes up for around 20% or more of the annual sales revenue according to the NRF. Some retailers want to get in on this even earlier, so they start off their Black Friday sales on Thanksgiving day itself and then keep the deals running through the weekend till Cyber Monday.

Profitable Black Friday sales are very important for many retailers, especially the ones that primarily sell toys and games.

In 2018, shoppers were expected to spend $1,007 each over the entire holiday season. In 2019, shoppers spent an average of $361.90 just during the period from Thanksgiving through Cyber Monday.

Cyber Monday sales are becoming a bigger deal than Black Friday itself now. It is the biggest online shopping dat of the year and in some years, the Cyber Monday sales have been greater than the Black Friday sales themselves. In 2019, Cyber Monday sales were upwards of $9 billion, much more than Black Friday’s sales figures of $7.4 billion.