Money Mondays: Making Sense of Gray Thursday and Black Friday

Mellody is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts.

Additionally, she is a regular financial contributor and analyst for CBS News.

TOM: Good morning Mellody.

MELLODY: Good morning, Tom!

Tom: What do you have for us today, Mellody?

MELLODY: Well, Tom, we are talking about the crazy shopping weekend coming up in a few weeks. As you know, Black Friday is traditionally the biggest shopping day of the year, but this year different stores are taking different approaches. Some are opening on Thanksgiving – what people are now calling Gray Thursday – while others are sticking to their guns. This morning, I wanted to help make some sense of these moves for you.

TOM: Great! Why did stores start opening on Thanksgiving in the first place, Mellody?

MELLODY: The trend of stores opening earlier and earlier on Black Friday, and now earlier and earlier on Thanksgiving, is really driven by a desire to get a step ahead of competitors and fight for every single dollar that Americans are spending during the big retail sales season. Kmart has been doing this for 20 years in order to get a head start on the holiday shopping season. After all, Thanksgiving weekend accounts for 10% of the total holiday spending that consumers do between November 1st and Christmas. Last year Americans spent over $57 billion in those 4 days alone, so this is a very important weekend. On top of this, retailers have been squeezed by a number of factors in recent years. The great recession was 6 years ago, consumer confidence has been slow to recover, and online competition has led to lower mall traffic. Put together, it’s easy to understand why brick and mortar stores are in a bunker mentality when it comes to Thanksgiving and Black Friday.

TOM: Have these stores been raking it in by staying open?

MELLODY: Actually, not really! It depends on the store, but some signs tell us this may not be as successful as retailers think. In recent years, more information has emerged that casts a different light on this drive for ever-earlier door opening, and for many retailers it is becoming a race to unprofitability! In trying to get a jump on the competition, many companies are finding that they are simply making sales on Thursday at the expense of Black Friday. Then, when you calculate in the expense of having the stores open the extra hours, with staff wages at time and a half in most cases, it may actually put them in the red on Thursday, and hurt Black Friday at the same time. This is why companies that rely on keeping operational costs as low as possible, such as T.J. Maxx, are staying closed.

TOM: That makes sense. Why do some stores open while other stores stay shuttered?

MELLODY: It really is based on the type of store. Many of the companies that are resisting opening have very clear reasons for not opening. Take Nordstrom’s for example. Nordstrom’s has a distinct aversion to any kind of promotional cadence, and being open on Thanksgiving would play right into that. The company only has 2 well telegraphed sales a year. They believe the minute that they start pushing promotions, they would lose on price, and that they would be effectively training their customer not to pay full price which would hurt their margins. That is why some of the higher-end stores have a clear reason to buck the trend.

The other side of this is a store such as Costco. Costco is not a holiday gift destination store in the same way that Kmart is – they simply do not rely on the holiday sales to put them over the top every year. Their profitability comes from loyalty through their membership program. That leaves us with the companies that depend on volume. If low prices are your bread and butter as a retailer, your goal is to drive as many visitors through your stores as possible. If you fall into this category, you are very likely to open on Thanksgiving. After all, it would be risky not open when your fellow volume-reliant competitors have their doors unlocked. So, if you are Wal-Mart, you could miss out on your portion of the $685 dollars that average American expects to spend this holiday season by being closed on Thanksgiving.

TOM: What do shoppers think about this?

MELLODY: Well, Americans are divided, but a majority of people think that stores should stay closed and let people enjoy their turkey! Roughly 6 in 10 Americans say they “hate” or “dislike” the fact that stores open on thanksgiving, while only a combined 12% claim they “like” or “love” the practice. But i am willing to guess that some of our listeners are getting ready to line up at the doors right after that last piece of pumpkin pie!

TOM: I bet you are right, Mellody! Have a great day!

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Money Mondays: Making Sense of Gray Thursday and Black Friday was originally published on blackamericaweb.com