It's that time of year again. Here's our report from November 2012 on why you shouldn't read any broader economic significance into Black Friday sales results.
Black Friday is here, and if you happen to derive pleasure from streaming around big box stores or mega malls as part of a teeming horde, well, who am I to judge another person’s sources of enjoyment.
Let’s just not pretend that it means anything.
When television news crews and newspaper writers go to cover the holiday crowds, they try to give the festivities some great economic import. Standard aspects of the genre include noting that holiday sales can account for about a third of retailers’ annual sales; cite authoritative-sounding projections from the National Retail Federation about what this year’s sales will be, and perhaps even note that consumer spending accounts for 70 percent of the U.S. economy (conveniently leaving out that most of that spending has nothing to do with gift-giving or holiday cheer).
In fact, sales over Thanksgiving weekend tell us virtually nothing about retail sales for the full holiday season—let alone anything meaningful about the economy as a whole. Paul Dales of Capital Economics analyzed the relationship between retail sales during the week of Thanksgiving against the overall change in retail sales for November through January. As the chart shows, the relationship is a very weak one, with dots all over the grid. But if there is any conclusion to draw at all, the relationship is actually negative! (That’s why the line is sloping downward).
In other words, strong sales results around Black Friday actually predict slightly weaker holiday sales overall. (Shhh. Don’t tell the people who lined up at Target last night that they aren’t actually bellweathers for the U.S. economy).
So if the whole thing is economically irrelevant, why does the media (this newspaper included) make such a big deal out of Black Friday, Black Thursday, Cyber Monday, or whatever other new terms of art the retail industry marketeers have come up with lately? It is a case study in the interaction of parties with skewed incentives.
Retailers know that a typical family spends whatever it will spend on holiday gift-giving, and that whether that spending comes on Nov. 23 or Dec. 23 doesn’t make that much difference in the aggregate. But retailers aren’t a monolith; they are all chasing market share from the others. And the minute one retailer discovers that opening at midnight on Thanksgiving will attract a mob of people, cash in hand, others are reluctant to cede those sales to the guy down the block. Thus, an opening-time arms race that resulted in this year’s prevalence of stores opening at 8:00p.m. on Thanksgiving.
For the media, it is a ready-made story. It takes place at a time that there is little other news, and it is known in advance, so editors and TV news directors can plan in advance for coverage. And there’s no doubt that video of people stampeding through the doors of a Wal-Mart in hot pursuit of a new Wii makes for great television. That is even putting aside more cynical possibilities, such as that media depend on retail advertising and thus have a vested interest in creating a sense of hype and anticipation around an orgy of consumerism.
And what, then, of the people themselves, the consumers who line up with breathless anticipation and make the whole thing possible. From an economists’ perspective, this is a case in which the retailers are using a rationing mechanism other than price to allocate scarce goods: They price a limited number of TVs and other products at a below-market price, and then ration those goods based on who is willing to stand in line the longest. Essentially, the buyers receiving the discounts are “paying” the store by standing in line for hours upon end, creating the sense of anticipation that in turn attracts the TV cameras and, the retailers hope, eventually a broader group of consumers who will pay the actual market price.
“I think they want to bring the people here and make them tired,” a man named Saeed Yazdi told my colleagues Abha Bhattarai and Steven Overly Thursday night outside the Best Buy in Columbia Heights. “It’s veiled punishment.” Well yes, Saeed, precisely.
The retailers maintain market share, the media gets a story people enjoy watching, and people like Yazdi get a discount that would otherwise be unavailable. As long as everyone is happy, it seems rather harmless. Just don’t pretend that something bigger is at stake.