The single largest day for UK Retail…but what does it mean for retail stocks For consumers, Black Friday is an opportunity to shop. For investors, it is a chance to assess how retailers’ promotional activity is changing.
With an interest in both sides, in this note we have tracked offers across 30 retailers: 13 have higher promotions yoy, 15 the same and only 2 lower. Black Friday has a meaningful impact on cal. 4Q sales and margins, but this year is set to be even more significant (one fewer week between Black Friday and Christmas).
We believe changing tactics at ASOS, Superdry, Inditex and JD Sports suggest they may be early leaders in this peak trading period. Headline discount up, breadth of discount down – maximising gross profit? Press reports focus on headline discounts, which we find are up yoy (-39% vs. -32% LY). However, the most ‘profitable’ Black Friday strategies drive higher sales and/or minimise gross margin pressure over the whole 4Q trading period. Blanket promotions (generally low depth but high breadth) can put retailers in a bad position as popular products sell during the Sale rather than on full price in December (e.g. ASOS last year).
Online retailers should aim to maximise items per order, and multichannel retailers to drive sales to th0e highest-margin channel, the store. We therefore look for who is bestevolving tactics, such as using ‘spend more, save more’ promotions (eg £10 off £100, £30 off £200), or selective discounts (eg ‘up to 60% off’ vs. ‘20% off everything’).
Stock conclusions: ASOS, Superdry, Zara, JD Sports potential leaders this year ASOS: higher headline promotions (up to 70% off vs blanket 20% off) should boost traffic (a profit warning in December 2018 partly resulted from less-competitive discounts), while avoiding a blanket discount should protect profitability and inventory selection. Superdry: only legacy stock appears to be discounted, in-line with management’s focus on reducing excess inventory.
Zara: historically offered ~20% off selected items, but this year offers 40% off selected items which should drive traffic and boost volumes. JD Sports: today’s Yeezy Boost 350 V2 launch is only available in stores, which should drive footfall and bring sales to the highest margin channel.