UNC Kenan-Flagler Business School


Black Friday: Behind the scenes


UNC Kenan-FlaglerOn Black Friday, there will be a lot more going on than great sales.  Here’s what is happening behind the scenes as retailers prepare for one of the busiest shopping days of the year.

Making sure the shelves are stocked

While shoppers are busy looking for deals, Zara has already been busy making sure the latest fashion reaches its Black Friday shoppers in the right amounts at the right time. Operations professor Adam Mersereau developed a decision-support system for distributing merchandise to stores and partnered with fast-fashion retailer Zara to test it.

He also has researched inaccuracies in inventory records – the discrepancy between a store’s computerized inventory and what the store actually has in stock. It turns out that store managers across the retail industry often don’t know what they have on their shelves – which can cost retailers money in lost sales.

“Making sure the shelves are stocked is not just about getting items to the stores,” Mersereau said. “It also requires careful management of operations within the store. For many retailers, operational excellence extends to managing their stock – from their inventory to what’s on their shelves and in their dressing rooms.”

Staffing those dressing rooms is key

Having enough staff to help shoppers in dressing rooms is critical for store performance, said Saravanan Kesavan. Clothes that pile up in dressing rooms are a real problem for retailers who increasingly rely on their customers to perform many tasks independently.

Managing congestion in fitting rooms can help the bottom line, according to a recent study by operations professors Kesavan and Vinayak Deshpande and PhD student Hyun Seok Lee, who ran a field experiment at a regional department store.

UNC Kenan-FlaglerAnd little more help from a sales associate goes a long way: The researchers showed that adding one person to work in the fitting room during peak hours increased sales by almost 16 percent per hour and transactions by 12.5 percent per hour.

Scheduling workers is an art and a science

Retailers struggle with scheduling their workers. This is especially difficult during holiday season when retailers hire a large number of temporary workers to meet peak demand. For example, Walmart plans to hire 60,000 temporary workers this holiday season while Amazon has already hired over 80,000 workers.

What makes scheduling so hard? UNC Kenan-Flagler professors Kesavan and Brad Staats explored some of the reasons in Harvard Business Review, which include:

  • Perfect forecasts don’t exist.
  • Tracking everything is unreliable.
  • A lot of flexibility isn’t necessarily a good thing.

An optimal mix of temporary and part-time workers can increase the profitability of the average store by nearly a third, according to a study by Kesavan, Staats and Wendell Gilland in Management Science. But hiring too many temporary workers has hidden costs: they tend to be less skilled and less experienced than full-time employees – so less productive. They found that stores that had more than four or five temporary employees for every 10 full-time employees ended up losing sales and consequently had lower profitability.

Even when all workers are well trained and integrated into the stores, scheduling the workers to precisely meet the customer footfall is difficult. In a study of 41 stores of a women’s apparel retailer, all of the stores were significantly understaffed during the peak periods of the day and significantly overstaffed during the rest of the hours. The retailer lost about 9 percent of sales and 7 percent profits as a result, according to research by Kesavan, Jayashankar Swaminathan and Vidya Mani of Penn State.

UNC Kenan-FlaglerSo, what is a retailer to do? The best kind of scheduling systems, according to the researchers, involves creating value for both managers and for workers. Belk – the largest family-owned and operated department store in the United States – uses systems that balance the efficiency provide by a software system with the wisdom and experience of store managers.                    

High-tech monitoring of shoppers (or Santa is not the only one watching)

As you shop at brick-and-mortar stores on Black Friday, the retailers might be tracking your movements in order to understand your behavior and improve store operations.

Retailers are increasingly using technology and analytics to gain visibility into in-store interactions. This includes RFID tags attached to inventory, video monitoring of customer movements, and mobile devices carried by associates,” said Mersereau. “This is about getting the customer the products and the help they need, and also about competing with e-commerce sites that have long tracked customer clicks.”

Kesavan – who works with a number of companies that develop retail technologies – finds that brick-and-mortar retailers that have fallen behind online retailers in collecting data about their customers are fighting back by adopting different technologies to learn about their customers.

Not only are these retailers keeping track of the number of customers entering the stores with the help of cameras positioned at the entrance, companies like RetailNext can track customer movements within the store. They help retailers identify the aisles where customers spent the most time, customer pathways within stores that led to purchases, and the proportion of customers that used fitting rooms before making their purchases. Other technology providers track customers’ mobile phone from the second they enter a mall or a store to track their pathways.

Don’t let your emotions be your guide

With the holidays comes a lot of excitement – and some might call it frenzy when it comes to shopping.

Responding to enticing ads and big sales, consumers can become more “present-biased,” said Camelia Kuhnen, who studies how people make financial and economic choices.

That means they start feeling impatient, feel the need to make immediate purchases and might overvalue certain goods and purchase them even though they don't need them, she said.

And these feelings are all in their heads. Excitement activates the primitive reward center in the brain – the nucleus accumbens – which: 

  • Induces a stronger preference for immediate rewards
  • Causes an increase in tolerance for financial risk
  • Predicts product purchase decisions

UNC Kenan-Flagler“While more consumption is better for the economy in the short-run, the fact that some households do not save at all – and get into debt in part because of spending too much around the holiday season – could actually have negative long-run implications for those households,” said Kuhnen.

Black Friday is good for shoppers but what about for the brand?

Black Friday is getting longer and longer, but is this shopping evolution good for premium brands?

The answer is that they might win the battle, but lose the price war.

Typically a company runs a price promotion for a brand one at a time – allowing a brand to “shine,” but during Black Friday sales, companies offer price reductions on many brands. Is this practice effective for the long term – when prices return to normal?

Supermarket price wars – where retailers battle each another by permanently reducing brand prices, affecting several brands at the same time – might provide answers, said marketing professor Katrijn Gielens. Hundreds of brands are involved simultaneously, which affects brands’ and retailers’ positioning and makes it hard to predict the how individual brands perform. Likewise, when the price war ends and prices are restored, the impact on brand is unclear.

Gielens tracked brand sales and shares before, during and after a long-lasting supermarket price war in the Dutch grocery market. For most brands, price wars did not generate revenue, sales or share unless the retailer permanently reduced prices.

A national brand can realize substantial sales and share gains only when rivals’ prices are restored – and it maintains its own reduced retail price. And restoring prices without new price promotion support can severely damage a brand’s performance.

Store brands, however, can benefit even when their regular prices are restored after the price war ends. In other words, premium brands have the most to gain during price wars, but lose more when the price war ends.