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Why Black Friday Doesn’t Matter

By Robert Frick on November 20, 2015

A week from today we’ll be waking up stuffed with turkey and regret. “Was that second piece of pumpkin pie really necessary?” And, “oh gosh, it’s almost noon and I haven’t rushed to those Black Friday sales and done my patriotic duty to support the economy.”

I admit I once factored in holiday-shopping projections and post-Thanksgiving surveys into my view of the economy. After all, what better barometer of consumer confidence is there than measuring mob mentality, post-Thanksgiving?

But as satisfying as a Walmart stampede is, schadenfreude-wise, and as compelling as those early shopping stats are, they carry as much weight as a snowflake. 

Black Friday Falderal

Our brains crave certainty and hate ambiguity, so we’re eager to fill in vacuums with information no matter how dubious.

When it comes to holiday retail sales, money manager and commentator Barry Ritholtz nailed it last year when he said they’re “a combination of a retail trade group that cares little for accurate economic data, a terrible survey methodology and a naive and lazy news media, which seems to believe its role is to mindlessly repeat whatever nonsense is peddled by the aforementioned trade group.”

The trade group in question is the National Retail Federation, which is projecting sales in November and December (excluding autos, gas and restaurant meals) to increase “a solid 3.7%.” Sometimes the NRF is close, sometimes it’s not. In 2012, for example, it predicted a 4.1% increase, overshooting the actual 3% by a wide margin.

The NRF also said that the last Black Friday was a disaster, with sales down 11%, which was dutifully reported by media from the New York Times to the Wall Street Journal. Was it such a disaster? That’s hard to say, given that figure is based on notoriously inaccurate surveys of shoppers. And sales over the Black Friday weekend are no indication of total holiday sales, a fact proven repeatedly, including by this chart tweeted by Jim O’Sullivan, the chief economist at High Frequency Economics.

Holiday Retail Sales

An Important Measure

How consumers are spending is an important measure, of course, especially these days. We’re all waiting for lower unemployment to translate into stronger spending, which will be a meaningful measure that this recovery has moved beyond tepid.

Based on real numbers, not holiday-spending, hocus-pocus forecasts, we’re still stuck at tepid:

  • The Census Bureau said retail sales in October rose just 0.1% from September, below economist predictions. That sank many retail stocks when the figures were announced last month.
  • The consumer discretionary sector is only holding its own, at best. Department stores, including Target, Walmart and Macy’s, aren’t reporting strong sales. In a recent report, brokerage Charles Schwab said that while “the American consumer has shown a remarkable ability to overcome obstacles … we believe the discretionary sector’s performance will be more muted in coming months.”
  • Consumers are nervous. Gallup’s Economic Confidence Index shows we remain more negative than positive about the economy.
  • Plus, we still have a fairly high level of credit card debt, down only a bit from a peak in 2008, when we were charging to keep our heads above water during the Great Recession.

To these numbers we can factor in holiday spending to get a more complete picture—but let’s wait until January when the actual numbers are released.

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  1. avatar
    Reginald Robinson Reply November 6, 2017 at 9:00 AM EDT

    Can a household company like Macy (M) whether the bricks and mortar storm as it competes with Amazon e-commerce?


    • Jim Pearce
      Jim Pearce Reply November 6, 2017 at 11:17 AM EDT

      Macy’s can survive Amazon, but it will have to make major changes to its retail distribution system in order to do so. A big difference between Target, Wal-Mart, and Macy’s (the three companies mentioned in this article) is that the first two primarily operate out of stand-alone buildings or strip shopping centers (which are still performing pretty well), while Macy’s is mostly positioned as an anchor tenant at shopping malls (which have seen a big dropoff in traffic). The problem is that Macy’s is already highly leveraged with debt, so it will have to figure out how to make the necessary changes on a limited budget in a short period of time. I wouldn’t bet on it.

      • avatar
        Reginald Robinson Reply November 6, 2017 at 12:06 PM EDT

        Got it! One other question: Will the partnership Macy’s has with China’s retailer “Fung” who currently distributes Macy’s products online through Alibaba impact earnings?

        • Jim Pearce
          Jim Pearce Reply November 8, 2017 at 9:26 AM EDT

          Probably not. Nowhere in Macy’s most recent analyst presentation does the company even mention that relationship, nor does it identify it as a meaningful revenue source: (click on the June 6, 2017 “Investor Meeting Presentation” pdf under Supporting Materials)