Black Friday Finances

 

By Brittany N. Cox
Registered Investment Advisor at Nestlerode & Loy Investment Advisors

 

Halloween is over and the stores are full of Christmas decorations and the emails and sale flyers are pouring in for Black Friday. Some of us wonder what happened to the rest of fall and Thanksgiving while others are putting up their trees and starting their lists. From a financial perspective, holiday shopping accounts for more than a quarter of annual U.S. retail sales so it’s easy to see why they like to get the season started so soon. Walmart started its sales on October 25, the earliest they ever have. This is likely due to a shortened holiday shopping season since Thanksgiving falls on November 28, the latest possible date for the holiday. 

Last year, over 116 million Americans hit the stores on Black Friday. According to financial website The Balance, shoppers plan to spend approximately $1,000 on holiday shopping. Of that, about 60% is spent on gifts and the other 40% goes for food, personal items and décor. Shoppers tend to be distracted from their gift buying and want to capitalize on sales that appeal to them personally. Over the past 15 years, spending has increased about 2.5%. Spending expectations for the holidays continue to rise, partly due to improved household finances. About 80% of shoppers expect to spend the same or more over the holidays this year.

According to Adobe Analytics, last year $6.22 billion was spent online by the end of Black Friday. Retailers are realizing that people will do more shopping earlier if the same deals are offered online as in store. And of course, the online shoppers avoid the chaos. Stores now announce the sales prior to Black Friday as they have decided they just want the sale, whether it is online or in their store.

Last year’s biggest winner of Black Friday shoppers was, you guessed it, Amazon. With their offer of free shipping to non-Prime members along with sale prices and hourly deals, consumers flocked to the web to make their purchases. Another winner was Kohl’s, selling 60 instant pots per minute. Shoppers were able to capitalize on Kohl’s Cash deals which, for Kohl’s, brought many shoppers back for round 2, or even 3, during the holiday shopping period. The losers? They were retailers who faced “technical difficulty” on Black Friday. For example, J. Crew offered 50% off all online orders, however, when shoppers went to the site to shop, they were met with an error message. Of course, if shoppers can’t shop, there will be no sales. 

So, what is the prediction for this year? The National Retail Federation predicts a 3.8-4.2% increase in holiday shopping this year. 

“The U.S. economy is continuing to grow, and consumer spending is still the primary engine behind that growth,” NRF President and CEO Matthew Shay said. “Nonetheless, there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors and political rhetoric.  Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by continued deterioration of these and other variables.” 

However, with job growth and increasing wages, the NRF still predicts that shoppers will spend more this year than last year. 

What about the tariffs? After watching the news one morning, my 85-year-old grandmother called me and said, “I need you to get on Amazon and order me two big boxes of coffee. There are going to be tariffs on coffee and I want to make sure I have enough to get me through.” As I was thinking about her concern, I mentioned that those two boxes would last her two years, at least. So, of course, the tariffs will have some form of effect on holiday shopping, whether it be the increased cost of goods affected or a decrease in consumer confidence. Some items, including apparel, footwear, and TVs, are subject to new tariffs that took effect in September of this year. 

More tariffs are scheduled to begin December 15. This may cause consumers to make their purchases earlier to avoid the extra costs. According to a survey by NRF in September, 79% of consumers were concerned that tariffs will cause prices to rise, affecting their approach to shopping this year. 

While you are gearing up to get your holiday shopping started, remember to create a budget and stick to it. Spending outside your means or creating debt will only create hardships and extra payments in the future. Many holiday shoppers open credit cards thinking they will pay them off right away or make payments until next year and use those cards again. Then the bills begin to pile up in January and it is overwhelming. Spending outside your means will not create any reward but creating a budget can. 

Most importantly, take a moment to breathe and enjoy time spent with friends and family. That is one of the nicest gifts the season brings!