Cyber Monday Sales: Disappointing?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In a bid to snatch market share away in a slow economy, online retailers are trying a nifty trick. According to The Wall Street Journal:
Online vendors this year moved some of their discounts and free shipping offers ahead to Thanksgiving on Thursday and Black Friday to compete more aggressively with brick-and-mortar retailers, instead of saving the offers for Cyber Monday.
The result? A new Black Friday sales record – over $1 billion. Is this good or bad for the overall retail segment?
The bad news is that online sales slowed. Online sales grew 30% this year, compared to 33% last year. Decreased growth certainly is not desirable, but increases of 30% or more are still strong moves. In addition, online jumps should continue to decrease as more and more people become familiar with buying goods online.
More importantly, the dollar amount per transaction decreased 6.6%, according to research from IBM. To me, this drop signifies three potential signs. First is hard economic times for consumers. But also factor in that the decrease could be caused from increased competition.
This is far more detrimental to retailers in the long-term. Amazon (NASDAQ: AMZN) and Wal-Mart (NYSE: WMT), for example, already have razor-thin margins. Amazon’s profit margin is just .07% (ttm) and Wal-Mart’s is 3.57% (ttm), much higher.
But both companies already boast lean operations. Can they continue to afford going head-to-head in price battles? Even though “low prices” is a staple of their business models, ever-thinning margins will hurt.
Finally, coupon and deal sites could explain the sales decreases. Places like RetailMeNot and coupon and promo code company CupoNation, which offer steep discount coupons for retailers, could be contributing to the revenue decline.
Another study, done by Adobe, shows increasing Cyber Monday sales from large retailers like Wal-Mart and Best Buy. The sales jumped past the $2 billion mark – a 17% increase – largely because of sporting goods and toy sales.
Last year sales for these retailers popped 18%. However, this year’s slight reduction in growth could be the result of the aforementioned results: a continually slow economy, increased price pressures, and coupon companies.
Nonetheless, the numbers are impressive considering that companies crafted deals so that they would carry into the next week after Black Friday. Amazon and Target (NYSE: TGT) began Cyber Monday discounts early and ran them the next week. Target hyped hot gifts like TVs, clothing accessories, and shoes and set itself up for “smoother” sales over a week-long period instead of just on Monday.
Online jeweler Blue Nile (NASDAQ: NILE) also ran a special. Its “12 days of Christmas” promo launched on Cyber Monday, and it featured discounts up to 40% off. In addition to the extended sale, Blue Nile is also active on the mobile front.
Its selection of apps allows customers to visit jewelry stores and compare their prices with Blue Nile prices. The idea can save customers hundreds or even thousands of dollars, all while driving profitable traffic to Blue Nile.
If you are trying to gauge fourth quarter earnings, ignore the Cyber Monday figures. To effectively compete against each other, retailers are encouraging early Christmas shopping and extending deals late into the next week and weeks. Is this good for the retail segment?
Yes. Despite strong price pressures from competing companies, I believe that extending into “Cyber Week” will increase the overall volume of purchases. We humans are suckers for great deals. We may not want to pay a lot – but craft a great deal, and a lot of folks can’t resist buying over and over again.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Best Buy, and Blue Nile. Motley Fool newsletter services recommend Amazon.com and Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!