Bayard Winthrop | Vox

Black Friday isn’t dead. It’s just irrelevant.

2016-11-22T11:33:28-05:00

Last year — and for many years now, really — the conversation around Black Friday has focused on the psychological effects of deep “savings” … and why consumers fall for the smoke and mirrors. Big brands have built pricing structures that are artificially high, allowing for massive discounts that appear to be “bargains.” This misrepresentation to the customer meant a lot of potential revenue in the middle of critical earnings weeks.

As consumers become increasingly informed and connected, we’re now all fairly aware of the Black Friday song and dance.

An impetus for consumers to spend? Something that is timely and special, and yet accessible, rather than discounted and leftover.

But there’s something else happening. In this moment of profound innovation on the back of e-commerce and technology, new and old brands are working hard to gain our business. In doing so, they have created a virtual “series” of “Black Fridays” throughout the season. These are cause-driven moments or limited-edition collections that add value in a way more relevant to today’s informed consumer; it’s not about false discounts.

The traditional Black Friday has failed us. While it still exists, and will continue to, the day has become a marketing mechanism for dying brands desperate for end-of-year revenue. This failure coincides with a sea change happening within the consumer mindset — an evolution from passive bystanders to empowered participants.

Simply said, we’re just not buying it anymore.

Casualty: Traditional retail, let’s quickly revisit

With consumers directing their dollars to e-commerce, the shaky economics of the mall and traditional retail are now exposed — older models built on unsustainable pillars that don’t align with the values of today’s consumers. They are not designed to deliver what consumers want: High-quality products, great value and brands they believe in and f**king love.

Traditional retail is stuck in an old business model, demanding high operational leverage and saddling these brands with baggage: Expensive cost structures, pricy rent and real estate, and huge inventory burdens. With customers leaving for online brands, top-line growth has faltered, tipping into a toxic financial environment that creates a death trap for these businesses.

As anchor tenant brands such as Macy’s, Sears and J.C Penney announce store closings (or bankruptcy filings), the marketing power that came with them dry up as well. That puts further pressure on the economics of the mall retailer as the entire ecosystem begins to lose foot traffic (revenue) and energy, giving customers even less of a reason to visit. Less-established satellite brands suffer, too, and a catastrophic downward spiral is completed.

Cause: You, a more psychologically savvy consumer

With declining interest in and attendance at the mall, as well as increasing expectations around the brands they support, millennials are accelerating change. This generation of shoppers doesn’t default to the comforts of traditional retail; this is the same generation that pushed for McDonald’s breakfast all hours of the day … and got it done. They are rule-breakers, they vote with their dollars and they are not easily fooled. According to a Gallup poll from May 2016, millennials are characterized as being “unconstrained,” they want change “in the marketplace and the workplace,” and “they don’t accept ‘that’s the way it has always been done’ as a viable answer.”

While brands used to get away with sultry ads and value propositions that they couldn’t deliver on, fine-line statements about VIP memberships and even the internal purchasing of one’s own product to swing sales projections, this new brand of consumer is in the know and demanding more. They are not falling for these tricks. So asking this highly cognizant consumer to participate in the most particular of retail games — and to spend money on a special day for “special deals” — is an increasingly ineffective tactic. This mindset coupled with a marketplace’s month of sales pounds more nails into Black Friday’s coffin.

Power shift: So now what?

As consumers get smarter, massive brands no longer hold the power to determine when or what we buy. Today’s consumer is demanding justification, motivation or true value to participate. That demand is often led by purpose and personal values, as consumers are increasingly supporting brands that reflect their own values.

Aside from things like high quality, fair pricing and an exceptional experience, we’re now experiencing a new wave of thinking to ignite the interest of consumers. A few examples:

Acknowledgement. One way to do this is through celebration — such as Singles Day, an invented holiday that lauds single Chinese men and women. E-commerce giant Alibaba seized on this 25-year-old cultural phenomenon by making it a day of shopping and celebration complete with concerts, celebrity appearances and unique product offering. The result? Sales that grossed more than $17.8 billion in 2016 — more than tripling last year’s Black Friday + Cyber Monday’s sales. Singles Day is successful because it celebrates who we are and has virtually no barrier to entry.

Social good. For many shoppers today, the experience is not just about what you receive, but also who you help. Amazon Smile kicked off a platform of giving a percentage of your spend to the organization of your choice. Toms Shoes was one of the first companies to institute a 1:1 program where when you bought something and you gave something. People loved it — the company has donated more than 60 million pair of shoes.

Uniqueness. Consider the Apple x Hermes collaboration. Or Missoni x Target. Customers came in droves to buy both; the fashion house and Target collaboration crashed the superstore’s website multiple times. The impetus for consumers to spend? Something that is timely and special, yet accessible, rather than discounted and left over. Consumers get a little piece of timely, curated history that might never exist again.

The net net

Brands, organizations and groups are still motivating consumers to buy. But the lens through which we are now incentivized has changed, and it has become more behavioral and values-driven versus bottom-line savings. We’re increasingly less motivated by a sale; high-value products and amazing experiences are now elbowing their way back into the conversation.

Oddly, this is a return to values of previous generations, when quality, values and relationships with brands mattered to shoppers. Maybe there’s something we all could learn from today’s younger shoppers, Black Friday be damned.

Bayard Winthrop is the CEO of American Giant, which he founded after spending nearly 20 years running businesses in the consumer products space. Winthrop began his career in corporate finance at Donaldson, Lufkin & Jenrette, but soon left investment banking for a career as a business leader and innovator. He recently co-authored “I F**king Love That Company,” with Randy Komisar of Kleiner Perkins Caufield & Byers. Reach him @BayardWinthrop.

This article originally appeared on Recode.net.

Why That Black Friday ‘Doorbuster’ Sale Is Costing You

2019-03-06T06:05:57-05:00

The U.S. has a history with dollar-off, percent-discount, “doorbuster” sales. Take Black Friday and Cyber Monday — arguably the biggest examples of that history. Consumers have been conditioned to believe that they are getting a deal in purchasing something at a discount. The satisfaction of savings is understandable, because paying “less” feels like success. However, that belief is constructed by retailers whose business models have become dependent on offering discounts to customers to move merchandise that is too expensive to keep in stock. They are tangled in a multi-layered distribution model with the costly real estate and weighty supply chain it requires, and they’re stuck.

Consumers are ultimately cheated by sales, despite feeling psychologically satisfied with the perceived savings.

Not all retailers are in this death spiral. We are experiencing a “Post-Amazon” era, led by nontraditional retailers creating companies on the core pillars of brand value, quality and experience. These brands have shed the heavy cost of brick-and-mortar, expensive and complex distribution and massive marketing campaigns.

Traditional retailers turn to the consumer to shoulder the problem. They must move excess product, and they use specific sales tactics to drive consumers to buy immediately and in bigger quantities. However, there’s more to the reduced cost that we must consider.

Common retail business “solutions”

Three very different but common tactics are employed by major retailers to reduce the weight of a crumbling business model, and every consumer has likely been subjected to each of them. Coupon culture is the oldest and most elementary: The more we buy, the more we save. Retailers hope that the promise of saving money is alluring enough to overspend. Consumers believe they are benefitting — the mentality is “look how much I saved” versus “look how much I bought.” Stores reduce their stockpile, clearing out shelf space for a new mass of product to occupy.

Another tactic is the calendar manifestation of the sale: Black Friday and its digital sister Cyber Monday. The former came about by workers historically calling in sick after Thanksgiving dinner. Retail benefited — stores noticed a pattern of robust revenue, eventually becoming a critical day in growth predictions for the year. For a company burdened with too much stock, a Black Friday is essential for unloading product on customers.

The newest tactic is the flash sale, considered both a business model and a business method. The flash sale implies the ability to buy at a discount for a limited window of time. The leader of the flash sale movement, Groupon, just announced another round of layoffs earlier this year. But, when it announced its IPO back in 2011, consumers were excited to have access to these curated sales. Overstock gets an upgrade by playing into the concept of limited availability. Scarcity adds value, and Groupon made that its business model.

At a cost to the consumer

The association of “sale” as a positive for consumers is a misnomer. Behind the glossy sale signage, there is a different reality. When a T-shirt at a traditional retailer is marked down, it looks like a deal to the consumer, but the price (even at discount) often remains grossly inflated compared to production cost — an indication of overpricing to begin with.

When retailers’ profit margins diminish because of these discounts, it feeds into a vicious cycle of cutting costs wherever possible to increase profits and sustain a fundamentally broken business. Where those costs are cut, the consumer suffers, usually by a loss of quality and service. Consumers are ultimately cheated by sales, despite feeling psychologically satisfied with the perceived savings.

Eliminating costly product markdowns allows companies to invest in more of what matters to consumers in the first place — things like high product quality, excellent service and overall value. What consumers are instead funding with their dollar is a broken and inflated retail cost structure, and a product whose quality has suffered as a result. The discount model is a symptom of massive hemorrhaging from a collapsing retail model.

The new era of retail

Enabled by technology and the power of positive word-of-mouth, the new landscape of retail is free of these traditional model constraints. “Post-Amazon” brands invest in things that matter to consumers — not coupons, sales or flashy signage.

These brands are poised to thrive, because consumers today are spending their dollars very intentionally. With the proliferation of direct-to-consumer retail, we have the entire world at the tap of a fingertip; we are armed with infinite choice and therefore selective about where we shop. Customers are able to seek out the values that matter most to them, whether it’s where a product is made, or a focus on social good, or free shipping. When a brand resonates, today’s consumer will tell the world. Such is the power of social media, which can play a heavy hand in building a brand.

Ultimately, the extinction of the sale helps to usher in a new retail era. If a customer is given the value and quality she wants, retailers are able to drive sales without the need for price slashing. While the playing field might look a little different, it’s a great landscape to build a new retail brand.

Bayard Winthrop is the CEO of American Giant, which he founded after spending nearly 20 years running businesses in the consumer products space. Winthrop began his career in corporate finance at Donaldson, Lufkin & Jenrette, but soon left investment banking for a career as a business leader and innovator. He recently co-authored “I F**king Love That Company,” along with Randy Komisar of Kleiner Perkins Caufield & Byers. Reach him @BayardWinthrop.

This article originally appeared on Recode.net.