Monday, December 7, 2009

Joys of Shopping

Another holiday has come and gone. Halloween was a burp at the end of October, and Thanksgiving was a blur. And before you have a chance to say “turkey again?” your next-door neighbors have their Christmas trees up and decorated. Or menorah. Or aluminum pole of Festivus. Either way it becomes time to shake off the Thanksgiving dinner coma and go winter-holiday-of-your-choice shopping. And it is a veritable free for all melee come Friday after Thanksgiving. There are so many peculiar nuances to this yearly ritual that aliens to Earth observing us must think we are all raving lunatics.

First, for what is supposed to be one of the greatest days for shopping in the entire year, when shoppers get deep deep bargains while retailers sell lots of merchandise, we have named it Black Friday. Now many believe it is because retailers go from being “in the red” to being “in the black”, but this is certainly the minority theory. It is more likely that the term “Black Friday” was created pejoratively to indicate the madness and chaos that ensues with the disruption of supply and demand by discounts. And the term likely originated in Philadelphia, currently the fattest and rudest city in the United States. Be proud, Philadelphians.

We will either stay up all night or get up at three in the morning to drive to the stores to get the best deals on whatever is up for sale, whether it is a Zsu Zsu pet, a Shop Vac, or HDTV. And the economics of Black Friday are atypical. If retailers are cutting prices by such large margins, you must wonder how they are making a profit. Microeconomics tells us that even though they profit less per item sold, they are selling far more items. So cutting your profit in half but selling three times as many items nets you one and a half times more profit. This then begs the obvious question, if this works for Black Friday, why not use this strategy the entire year? The answer, of course, is that it does not work well for the vast majority of retailers, but for different reasons. One reason is that retailers need the demand for their good to be so ridiculously high that by the time Black Friday comes around, people will go bananas and buy up every last piece of good, including items they really do not need. But if they kept it on sale all year round, demand would fall precipitously because people associate low cost with low quality or novelty and vice versa. (This is one reason why people think goods are expensive at Target even though the prices are some of the lowest. More on this another day.) They will also have too much time to think about buying and end up not buying at all. Another reason is that most of the goods purchased on Black Friday are not as personal items but as gifts. Since people are generally short sighted in terms of their future, they will generally not buy a Christmas gift in April, no matter how much it has been marked down. (This also helps explain Americans’ low savings rate and inability to save adequately for retirement. Again, more on that another day.)

Now the latest development in Black Friday sales is the opening of store at midnight or all night long. This came about after several trampling deaths from people rushing to get items before they sold up. The popular example last year was a trampling death of a Walmart employee. This was not even a raving lunatic shopper but an employee who had to work Black Friday. Could it then be any surprise that we get very little done as a society? Rather than simply behaving as civilized people should, we have to alter the environment in order to achieve a different result. Sound familiar? It is a very American concept. We blame the fast food industry for our obesity, cigarette manufacturers for our lung cancer, and television for our children’s bad behavior.

Now we have CyberMonday, the biggest online shopping day of the year. Far safer for all retailer employees to say the least. But I would bet that if the study was done, CyberMonday would be the least productive day of the year for most businesses. Even though the online stores are open 24/7, inventory is finite, so it’s still first come, first serve. And that leads to a lot of people shopping on company time, even with a lot of companies restricting internet usage.

Me, I will never be out there on Black Friday, fighting for parking spaces, standing in lines, and trying to get the last of whatever is going to be popular for one month before the next fad sweeps through. I will do a little shopping on CyberMonday, if I can find a good deal that includes free shipping. Most of my shopping, however, will be done on the classic busiest shopping day of the year—the Saturday before Christmas—when desperation and embarrassment increase your tolerance for traffic, lines, and every-man-for-himself behavior.