Will a Black Friday sales surge spell real profits?
In the consumer electronics space, high sales volumes don't necessarily add up to high profits. But as some see it, if Black Friday pricing is well planned and executed, retailers and manufacturers both stand to gain.
Black Friday clearly turned out to be a boon for financially pinched consumers, but will this year's high sales figures for consumer electonics and other holiday gifts translate into real profits for retailers and manufacturers? Although it's still too early to tell for sure, some observers are starting to reach preliminary conclusions.
"If the deep discounting of Black Friday continues through January, there will be a significant negative impact on margins and profits," Gary Levin, a partner in Deloitte's retail practice, told BetaNews.
"But if retailers only offer the big price reductions on special occasions -- such as around Black Friday, and the day before Christmas -- we won't see that impact."
According to a recent survey by Deloitte, home electronic stores will be second only to discount department stores among retailer stores where consumers plan to shop this holiday season.
"We expect consumer electronics to be among the hottest sellers, People are screaming to get items like MP3 players, Xbox, Wii, and Guitar Hero," the analyst said.
"Apple also appears to be doing very well with its Leopard machine and new iPod models. Apple timed the introduction of Leopard just about right."
Yet despite the momentum built up by Black Friday, Levin anticipates that, starting next week, sales will hit a temporary slowdown for a couple of weeks, caused by the five-week period between Thanksgiving and Christmas this year. "But then, sales will pick up again closer to Christmas."
Some CE manufacturers, too, point to differences between ultra low-priced "door buster" offers and the less steeply discounted sale prices -- often introduced later in the day on Black Friday -- that retailers adhere to during the rest of the holiday season.
If retailers do a good job of price planning on these promotions, margins and profitability will not suffer, suggested Eric Larsen, director of marketing for Mio Technology USA, a manufacturer of GPS personal navigation devices.
In fact, Black Friday retail promotions can have a highly positive effect on manufacturers' profitability, according to Larsen. Mio rolled out its GPS products into the North American market on Black Friday 2006. This year, the vendor is participating in promotional programs with several CE retailers. One GPS model, for example, was a door buster last week at Circuit City.
"Before last year, consumers thought of GPS devices as $500 items. But they've been able to buy Mios for as low as $149," he said.
"As a result of the increased sales volumes we've experienced, we've enjoyed economies of scale, enabling us to keep our prices down. This, in turn, has spurred more sales."