Every year, Black Friday becomes more popular. Based on the principle of going "red" to "black" in accounting terms, this time of the year is instrumental in driving holiday season sales to new heights. The UK in particular has seen a spike in Black Friday interest compared to previous years. According to Statista, consumers are expected to spend £9.42 billion throughout the Black Friday weekend, £3.42 billion of which are expected to be spent in stores. Compared to 2019, that is an expected increase of 10% in total spending, leaving us to wonder: Will consumers be left empty-handed as businesses struggle to keep up with the increasing demand?
Whilst a large drop in spending was the biggest challenge small- and medium-sized enterprises (SMEs) faced last year, in the aftermath of Covid-19, SMEs now face a new problem: high demand but low supply. We see two themes:
1. Uncertain economic conditions mean variable stock
Supply chain transit times have doubled from 35 days in 2019 to approximately 70 days in October 2021, according to recent data from S&P Global. The conditions mean variable stock and difficulty planning for demand among SMEs.
As a result, companies are encouraging consumers to start Christmas shopping earlier this year to allow more time for delivery. The variable stock ultimately makes the current Black Friday environment significantly harder to forecast.
2. Higher costs through inflation
This year, Black Friday will most likely see significantly higher prices with the supply deficit. Customers may not experience as many discounts as previous years. For businesses to stay afloat, they are being forced to sell their products at a higher price compared to the usual Black Friday pricing. The Consumer Prices Index (CPI) rose by 4.2% in the 12 months to October 2021, up from 3.1% in the 12 months to September. This year is the highest 12-month inflation rate since November 2011, when the CPI annual inflation rate was 4.8%. In addition to the increasing prices, discounts were significantly lower than the year before due to the shortage of supply. Taken together, consumers may be left discount empty-handed as businesses struggle to keep up with the increasing demand.
How can E-commerce platforms and Payment Service Providers (PSPs) make businesses’ lives easier?
After Covid-19, we have gone from a world of excess supply to one of significant shortage. The challenging supply chain and high costs as a result of inflation present a number of cash flow issues for smaller businesses. As a result, the historical “red” to “black” in the accounting books risks being red throughout Christmas. One key pain point for businesses is cash flow; fewer goods mean lower revenue, more expensive goods mean lower profit margins, and delivery delays mean working capital issues. However, e-commerce platforms and Payment Service Providers (PSPs) have a chance to make businesses' lives easier by offering their merchants funding to manage cash flow and stock needs. Take away the worry of an unpredictable business environment, and SMEs can focus on what matters to them most; growing their business.