Is Black Friday Still the Day Retailers Move From Loss to Profit?

While it's not the only meaning behind the name, one of the reasons Black Friday gained that nickname comes from the idea that the rush of shoppers moved retailers from a loss (the red) to a profit (the black).

Of course, the idea of retailers operating at a loss for nearly 11 months then turning profitable on the day after Thanksgiving was never an absolute. Yes, it was more or less true for toy stores, some electronics retailers, and maybe even certain department stores, but the reality is, "Black Friday" was always a generalization.

"Even though the amount of shopping on that particular day is extremely high, it's a bit of folklore that some high percentage of retailers finally experienced profitability on that very day," said Florida International University marketing professor Anthony Miyazaki in an email to The Motley Fool. "The vast majority of retailers are pulling a profit long before the holiday shopping season starts."

How important is Q4?

Looking at three retailers in very different states of health shows some clear patterns. In this table, Wal-Mart (NYSE: WMT) represents successful retailers while Macy's (NYSE: M) serves as an example of a struggling, but still profitable company, and J.C. Penney (NYSE: JCP) plays the part of struggling, money-losing retailer.

What's clear in all three cases is that the fourth quarter remains the most important quarter of the year. Wal-Mart's Q4 last year did not account for a significantly larger portion of its sales than each of the previous three quarters, but when you look at the 12-month period, it provided nearly a third of its profits.

For Macy's, Q4 stands as the company's biggest quarter, providing just over a third of its annual sales volume. And, in this case, the end-of-the-year quarter provided more than double the profit of the preceding three quarters.

The numbers aren't that different for J.C. Penney, at least on the revenue side, even though the company is losing money. The company lost $0.58 per share in Q1 this year, $0.20 in Q2, and $0.41 in Q3, compared to $0.43 in Q4 of last year.

What does all this mean?

"The truth is that getting into the black in terms of profits has always varied from retailer to retailer, with some getting into the black at different times of the year," wrote Pace University marketing professor Larry Chiagouris in an email to The Motley Fool.

Chiagouris explained that the internet has forced retailers to become more efficient. It has also eliminated some less efficient players. "The shakeout of inefficient mom and pop stores has lifted the entire retail sector so much so that by Black Friday, most retailers are already in the black for the year," he wrote. "Those that are not in the black are likely to be the retailers that end the year in the red."

So, while Black Friday has faded in importance, it remains one of the biggest shopping days of the year. The National Retail Federation said 115 million people are planning to shop on Black Friday this year.  For retailers, the day may not mark a move from the red to the black, but it's still a key milestone in the busiest shopping season of the year.

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