How did “Black Friday” earn its name? Most people (at least in my experience) mistakenly answer that Black Friday (the Friday following Thanksgiving) is the day when retailers start to earn a profit for the year . . . they go from being ‘in the red’ to being ‘in the black.’
Admittedly retailers engage in huge promotions following Thanksgiving, enjoy big sales on that Friday, and continue to sell throughout the holiday season. But really . . .? Retailers lose money all year long only to earn a profit in the last few weeks of the year?? Let’s take a closer look.
First, this doesn’t pass my own personal “sniff” test. Retailers need to cover their inventory costs (cost of good) and also cover the costs of advertising, employees/staff/salesforce, and rent. Most retailers sell products all year long. Common sense suggests (to me at least) that these sales should be sufficient to cover costs. While Q4 (of the calendar year) is probably the best quarter due to holiday gift buying, most retailers should earn a profit throughout the year. Is this the case? Let’s look at the data.
I went to Bloomberg and looked at publicly traded retailing companies and their quarterly earnings. While Q4 is an important quarter, these companies are profitable each and every quarter. To quantify the importance of Q4, these retailers that I evaluated earn about 35% of their profits in Q4 (such that the profit in Q4 is about 75% higher than the average profits for the other three quarters). To reiterate, every quarter is profitable for retailers.
[Note: the full retailer profitability data is below. I evaluated retailers suggested by Bloomberg and looked at earnings (a proxy for profits) for the past three years. The profits for Q4 2012 (the current year) are the consensus forecast of profits as estimated by Wall Street analysts]
So . . . how did Black Friday really get its name?
Wikipedia answers: “The day’s name originated in Philadelphia, where it originally was used to describe the heavy and disruptive pedestrian and vehicle traffic which would occur on the day after Thanksgiving. Use of the term started before 1961 and began to see broader use outside Philadelphia around 1975.”
I searched the internet to look for any other explanations or hypotheses. Interestingly, the most common links to web searches on this query produce the myth that Black Friday is when retailers ‘go into the black.’ No wonder this urban myth persists. If you have any question at retailer profitability, please see the actual data at the end of this post.
In other words, the name Black Friday is not about retailers; it refers to the misery of the shopping experience. (Other “Black” days, at least in my line of work, refer to stock market crashes. Fortunately, there are not too many of those.) As far as the misery of shopping, I personally can relate to that. I find shopping even under normal circumstances pretty miserable.
As for stock market crashes, the original Black Friday was Sept. 24, 1869 when speculators (Jay Gould, James Fisk, and others) tried to corner the gold market. They failed. That particular Friday was a pretty bad day.
sources: Bloomberg: Wikipedia: Black Friday;
Company profitability data for the past three years is below. The time periods refer to the calendar year, not each company’s fiscal year. Data for the current quarter (Q4 of calendar 2012) is based on Wall Street forecast estimates.
|2012||2012||2012||2012||as % total|
|Walt Disney Co||0.55||0.93||0.68||0.80||27%|
|The Gap, Inc||0.46||0.48||0.63||0.69||30%|
|Am. Eagle Outfitters||0.20||0.21||0.39||0.55||41%|
|Dick’s Sporting Goods||0.38||0.64||0.37||1.07||43%|
|TIFFANY & CO||0.69||0.73||0.63||1.61||44%|
|Abercrombie & Fitch||0.01||0.17||0.60||1.89||71%|
|2011||2011||2011||2011||as % total|
|Walt Disney Co||0.57||0.73||0.55||0.71||28%|
|The Gap, Inc||0.39||0.34||0.37||0.42||28%|
|Am. Eagle Outfitters||0.14||0.11||0.27||0.35||40%|
|Dick’s Sporting Goods||0.29||0.50||0.27||0.88||46%|
|TIFFANY & CO||0.57||0.71||0.63||1.42||43%|
|Abercrombie & Fitch||0.13||0.30||0.72||1.12||50%|
|2010||2010||2010||2010||as % total|
|Walt Disney Co||0.59||0.47||0.56||0.56||26%|
|The Gap, Inc||0.35||0.48||0.57||0.57||29%|
|Am. Eagle Outfitters||0.12||0.29||0.29||0.43||38%|
|Dick’s Sporting Goods||0.41||0.17||0.73||0.73||36%|
|TIFFANY & CO||0.52||0.36||0.36||1.39||53%|
|Abercrombie & Fitch||0.16||0.51||1.32||1.32||40%|