Black Friday: Profit or Punishment? My view on how to make the most of it
It’s that time of the year again when our bank accounts take a hit as we go on the hunt for festive bargains. Businesses promote their best deals of the year and many of us find it impossible to resist, driving us to order vast amounts of selected lines in a very small period of time. While that is great for consumer saving and the business bottom line, it does create a multitude of questions and issues that must be addressed. After all, if you can’t fulfil the orders your revenue will diminish through high returns and cancellations.
In 2013 the UK experienced our first Black Friday, as the concept itself hopped across the pond from our American neighbours. We saw widespread stories of unruly shopping, fights for TVs and hordes of people rushing to secure the best deal as soon as shops opened. Four years on and the story is now far more civilised, with e-commerce bearing the brunt of increased demand.
An estimated £1.23bn was spent online on Black Friday 2016, a 12% increase on the year before. However that is not the full story. Days like Cyber Monday and the expansion of Black Friday (terms like Black Fiveday are now being coined) meant that the week containing Black Friday and Cyber Monday contributed a monumental £6.5bn. In fact the 6 week period from mid-November until the end of December is now considered the peak period for most companies, with Black Friday sitting proudly above the rest of the inflated orders. Some companies report up to 60% of annual revenues being received in this period and Black Friday representing 750% order volume compared to an average day. This period for some generates enough business to compensate the other 46 weeks of the year running low.
Despite the tangible benefits that come with this boost in sales, how do companies fulfil these orders when they have had nowhere near this demand at any other time? Omni-channel is the current buzzword, meaning that store and e-commerce operations are fulfilled through the same site. Warehouses are clearly changing, no longer are long term storage or distribution to high street stores the key driver. Picking individual orders and the flexibility to scale up and down have become essential in dealing with the peak. The key is to design a solution that can deal with peaks, but not one that is designed to maintain those throughputs. Essentially the excess demand is dealt with by a combination of minimal additional staff and full utilisation of equipment. In traditional warehouses such increases would mean long walking distances and inefficient levels of increased employment due to low pick rates.
The balance may be found in mechanisation or low level automation, which allows higher throughputs without the cost of a fully automated system. This allows for a ramp up of people on manned stations, but the majority of the workload is absorbed by the equipment. For example a transport system allows the orders and product to move from person to person, eliminating wasted walking time. Fully automated solutions allow these levels to be maintained all year, but for those companies that only experience a radical peak around this 6 week period the costs can often be prohibitive. Therefore mechanisation (use of transport system, vertical lifts, low level IT etc.) offer a lower cost alternative for mid-range throughputs.
Alternatively some companies are moving to e-commerce only fulfilment sites which are separate to store distribution centres. Companies like The Range and Sainsbury’s are opening these sites purely to focus on internet business throughout the year. This allows pure focus on the particular order profile of e-commerce which factors in more orders with fewer lines per order and units per line. By doing so they ensure that this side of the business is always maintained and allows clear focus on all elements individually. Whilst this is an ideal situation for these companies, it requires a certain level of business through both store and online channels to justify separate distribution centres.
Whether you fall on the side of an operational nightmare or an essential money saver, what is clear is this peak is here to stay. For some the 6 week period encapsulating Black Friday, Cyber Monday and Christmas is a necessity to survive. Those mid-range companies must ensure that their operation is well setup to deal with the peaks and omni-channel to capitalise on his period and use it to thrive, not just survive.