Black Friday – the day after the U.S. Thanksgiving holiday — is one of the most critical retail sales days during the holiday season, and for some, it can make or break their fourth-quarter profits. Supposedly, it turns red ink into black on the ledgers.

Retailers have also been investing heavily in the omnichannel experience, giving consumers a seamless shopping experience by interconnecting physical and digital. As a result, Refinitiv partnered with StyleSage Co., which analyzes retailers, brands, online trends, and products across the globe to track the average discount percentage and how much of retail assortment is on sale going into the Black Friday week.

Here are some highlights as we head into this year’s Black Friday season:

• The overall average promotional discount hasn’t changed significantly since August.
• The current average promotional discount is 3% and has been near this level for months, slightly above the 43% mark seen since August.
• Going into Black Friday week, the specialty sector has increased its promotions every week.
• The top promotional online keywords are: Gifts, BOGO (buy one, get one), new, free, event, jewelry, boots and dresses.
• Of all retailers, the department stores might be relying the most on having a great Black Friday to match and or exceed their quarterly estimates.
• Over 60% of the merchandise at mid-tier department stores will also be on sale this year, which could further hurt profits.
• As far as item-level discounts go, there aren’t any major changes in the average discounts from one year ago, nor the discount penetration (how much of the assortment is on sale).
• Refinitiv Same Store Sales Index is looking at a 2.5% growth estimate for the holiday season (vs. 4.1% in Q4 2018).
• Retailers are concerned about trade war implications. Currently, they are reporting Q3 earnings and 63 retailers have already mentioned the upcoming December tariffs.
• Guidance shows that for Q4 2019, there have been 23 retail negative EPS preannouncements, compared to 7 positive.

Email Discounting

Retailers have been ramping up their Black Friday promotions and emailing their upcoming deals. However, the average promotional discount of 44.3% hasn’t changed much over the last two months, as we discovered in a collaboration with StyleSage Co.

However, what is changing is the frequency with which retailers are engaging in promotional Black Friday messaging – with an average of 6.64 emails sent in the week/per retailer. StyleSage Co. saw a 12% increase over the last week in the number of emails being sent out and a 13.4% increase in the number of active promotions.

Digging deeper into the item-level discounts, it is evident that with the exception of the department stores, there aren’t any major changes from one year ago when it comes to the average discounts, nor the discount penetration (how much of the assortment is on sale). Let’s look at the data by sector.

Discount Breakdown by Sector

Value

Notice how the discount penetration dropped to 1% this year from 9% in 2016. (Exhibit 1). This means that there continue to be fewer items on sale this year vs. previous years within this sector. This could also be a positive sign that perhaps these stores made better assortment buys for this holiday season. Items at Target and Walmart are also already low priced, and these retailers don’t tend to approach Black Friday with category-wide promotions. In particular, Target has refocused its efforts in private label apparel, which have led to improved sales and share of category. These discounters also have customer loyalty that today is translating into solid retail earnings.

Exhibit 1: Value Sector Discount Penetration and Average Discount 2016 – 2019

(Click on image to enlarge)

 Source: StyleSage Co.

Specialty

The specialty sector has increased its promotions every week leading into the Black Friday week. The discount penetration is starting to match last year’s level and has gone up to 49%, near the level of 51% seen in November 2018. This year, there are a few items that are less discounted than last year. The slowdown is more prominent in footwear (46% last year to 36% this year) – which are hot items during the holidays. Some sneakers have a big following, and most of the sneaker release dates coincide in November around Black Friday. The average discount in this sector remains the same as last year at 20%.

Exhibit 2: Specialty Sector Discount Penetration and Average Discount 2016 – 2019

(Click on image to enlarge)

 Source: StyleSage Co.

Mid-Tier

This sector has experienced a slight drop in discount penetration — 69% in 2018 to 63% this year, in large part because discounts have gone down in clothing and bag categories. Still, more than half of inventories are on sale at department stores such as Macy’s and Lord & Taylor this year. That’s extremely high as retailers like Macy’s and Kohl’s struggle to keep lean inventory levels. Thus, the question remains how long this sector can maintain these high discount levels, which come at the expense of margins. The average discount hasn’t dropped much — 23% this year from 30% last year. Bags have seen a major reduction in the proportion that are on sale from one year ago (59% down to 44%).

Exhibit 3: Mid-Tier Sector Discount Penetration and Average Discount 2016 – 2019

(Click on image to enlarge)

Source: StyleSage Co.

Luxury

Not surprising, the luxury sector looks largely unchanged from one year ago. There aren’t any meaningful changes in this sector in terms of both average discount penetration and average discount amount. It continues to see the lowest levels of discounting. The discount penetration level is at 32% this year vs. 34% last year. The same can be said for the average discount level which has remained at 14.0% this year.

Theoretically, things look to be in about the same condition as last year – so it will be interesting to see how macro factors play out in spending during what’s a very short shopping season vs last year.

Exhibit 4: Luxury Sector Discount Penetration and Average Discount 2016 – 2019

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Source: StyleSage Co.

Refinitiv holiday sales forecast

Consumer spending was robust last year, so retailers are facing difficult comparisons. Still, holiday sales are expected to see a healthy growth. The Refinitiv Same Store Sales Index is looking at a 2.5% growth estimate for Q4 2019, below the 4.1% SSS growth last year. Both the discounters and specialty sectors are expected to post the strongest SSS growth at 3.0%, and 2.6%, respectively.

Exhibit 5: Same Store Sales Sector Estimates – Q4 2018 vs. Q4 2019

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Source: I/B/E/S data

Same-Store Sales winners

Getting the house ready for the holidays is a priority for consumers as Lovesac, West Elm and Home Depot are all expected to see strong Q4 2019 comps this holiday season at 34.7%, 13.0%, and 5.0%, respectively (Exhibit 6). Aerie has the strongest SSS estimate of 14.7% within the apparel sector. Likewise, Crocs will be another holiday destination, while Lululemon benefits from the hot athleisure trend. Meanwhile, Free People is expected to see a 6.4% SSS growth this year, above last year’s 4.0% SSS.

Exhibit 6: Top SSS estimates – Q4 2019

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Source: I/B/E/S data

Same-Store Sales losers

The retailers with the weakest SSS estimates are suffering from company-specific issues. JC Penney has been struggling for some time and has one of the weakest SSS estimate for the holiday season at -7.4% SSS estimate. Meanwhile, Kate Spade and Chico’s fashion have been out of favor for some years now, and have a -8.5%, and -7.3% SSS Q4 2019 estimate, respectively.

Exhibit 7: Bottom SSS estimates – Q4 2019

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Source: I/B/E/S data