Calculate Your Own "Black Friday"

[Adamski]

Guys,

My mind never sleeps ... I was thinking about how the mall stores like to claim that they don't make any profit until Black Friday which is the friday after Thanksgiving. I always use to think - what a bunch of bull. Today, however, my mind awakened to what they're really talking about. Here's how they're calculating Black Friday.

They're obviously taking all their operating costs (rent, cost of goods, utilities, labor, freight, etc) for the entire year and applying that figure against gross sales. That way, in effect, the year's worth of costs wipe out all the gross sales up through Thanksgiving Day ... or so they say anyway. What they're not saying is that by using this methodology; all sales after Thanksgiving Day through the rest of the year fall to the bottom line and are 100% profit. Well ... isn't that interesting?

So, guess what. I decided that I'm going to calculate my Black Friday. All I did is take last year's net profit (Line 12, form 1040) and from that figure, I subtracted each collection report sales total starting at 12-31-2008 and working backward until the balance becomes zero or negative. The date of that zero balancing collection report is my Black Friday.

Very enlightening ... try it for yourself ... you'll be surprised how quickly you zero out.

We might consider sharing our respective Black Fridays with our customers so they can feel sorry for us for having to work for so many months at no profit just to get to Black Friday. After all, that's the psychology behind Black Friday at the mall.

[STOUT]

So do your brick and mortar friends agree with this?

[Adamski]

So do your brick and mortar friends agree with this?

Deward,

I don't know anybody in the mall but this is the only possible conclusion I can come up with that makes any sense. For years they've been playing the "Black Friday ... I finally get to make some profit" card so that shoppers will feel just a little bit better about ... well, shopping. (Yeh, like my wife didn't feel good enough about shopping already!) This is similiar to what the National Cherry Growers Association does. If they have a good crop, they cry because the price per pound will be lower. If they have a freeze and lose part of the crop, they cry because they won't have as many pounds to sell (but the price per pound will be up).

Maybe it's time I jumped on the "Working for nothing" bandwagon too. When my Black Friday roles around next year, I think I'll put up a banner announcing a Black Friday promotion.

[Jefflange]

I think if you ask the average customer at the mall what black friday is they would just know its a big sale time before christmas. I dont think most people know thats when the store claims to start making a profit.

[pressandclean]

I'm closing in on my "Black Friday." Only about another six weeks to go.

[thinkclean]

Guys,

My mind never sleeps ... I was thinking about how the mall stores like to claim that they don't make any profit until Black Friday which is the friday after Thanksgiving. I always use to think - what a bunch of bull. Today, however, my mind awakened to what they're really talking about. Here's how they're calculating Black Friday.

They're obviously taking all their operating costs (rent, cost of goods, utilities, labor, freight, etc) for the entire year and applying that figure against gross sales. That way, in effect, the year's worth of costs wipe out all the gross sales up through Thanksgiving Day ... or so they say anyway. What they're not saying is that by using this methodology; all sales after Thanksgiving Day through the rest of the year fall to the bottom line and are 100% profit. Well ... isn't that interesting?

So, guess what. I decided that I'm going to calculate my Black Friday. All I did is take last year's net profit (Line 12, form 1040) and from that figure, I subtracted each collection report sales total starting at 12-31-2008 and working backward until the balance becomes zero or negative. The date of that zero balancing collection report is my Black Friday.

Very enlightening ... try it for yourself ... you'll be surprised how quickly you zero out.

We might consider sharing our respective Black Fridays with our customers so they can feel sorry for us for having to work for so many months at no profit just to get to Black Friday. After all, that's the psychology behind Black Friday at the mall.

I think you're on to something but most well run softgoods companies will be profitable throughout the year. Let's look at some large box retailers that the majority of Americans go for their shopping needs. The following is a list of quarterly profit reported in fiscal 2009. These companies all have years ending in January, for obvious reasons.

J.C. Penny
Q1- $0.54
Q2- $0.52
Q3- $0.55
Q4- $0.94

Macy's, lost money in Q3
Q1- $0.02
Q2- $0.29
Q3- ($0.08)
Q4- $1.06

Wal-Mart
Q1- $0.76
Q2- $0.86
Q3- $0.77
Q4- $1.03

Target
Q1- $0.74
Q2- $0.82
Q3- $0.49
Q4- $0.81

I think it's more complicated than a simple rule of thumb because there are well rounded retailers with capable management teams that make money throughout the year, with the exception of Macy's, they lost money in FQ3'09 and also lost money in FQ1'10 and FQ3'10.

[Howard]

I think it's more complicated than a simple rule of thumb because there are well rounded retailers with capable management teams that make money throughout the year, with the exception of Macy's, they lost money in FQ3'09 and also lost money in FQ1'10 and FQ3'10.


No that is not really true. They are making money in the first quarter but that is only based on the expenses that they incur in that quarter. They are not covering all their fixed costs in that quarter. What Larry is talking about is if you take all your fixed costs for the entire year and allocate your contribution from each unit you sell to come up with the point where you break even. It does not happen for anyone in the first quarter, well almost no one.

[Adamski]

I think you're on to something but most well run softgoods companies will be profitable throughout the year.

Ben,

My point (as Howard pointed out) was that all the talk about Black Friday being the first day that many retailers begin earning a profit is not based on commonly used accounting practices ... it's based on VooDoo accounting practices.

You're correct. Walmart, Penny's, etc. make money throughout the year. Each quarter brings them sales income and operating expenses. Subtract that quarter's operating expenses from the sales income and they're generally left with a quarterly profit. However, the Black Friday designation is all about influencing shoppers to buy more product or at least to buy product with reduced guilt. It has absolutely nothing to do with normal accounting practices that guide business decisions.

[thinkclean]

Ben,

My point (as Howard pointed out) was that all the talk about Black Friday being the first day that many retailers begin earning a profit is not based on commonly used accounting practices ... it's based on VooDoo accounting practices.

You're correct. Walmart, Penny's, etc. make money throughout the year. Each quarter brings them sales income and operating expenses. Subtract that quarter's operating expenses from the sales income and they're generally left with a quarterly profit. However, the Black Friday designation is all about influencing shoppers to buy more product or at least to buy product with reduced guilt. It has absolutely nothing to do with normal accounting practices that guide business decisions.

Larry,

I see your point better now. I agree retailers use every influence weapon known to attract traffic and make a sale.