Black Friday: It's Game On for Retailers

Strap on your helmets, folks, because this could get physical.

We've all seen the Black Friday stories about shoppers gone wild. Last year, we heard about the woman at a California Wal-Mart (NYSE: WMT  ) who sprayed nearby patrons with pepper spray just to clear her path to an Xbox game console. The Black Friday before that was even rougher. Authorities had to shut down part of one mall after a fight broke out in the food court.

But it's not just shoppers who can ratchet up the competition to new heights this time of year. Retailers are taking big risks in their scramble for a piece of the holiday pie. And you can't really blame them; it's a big pie. The National Retail Federation says holiday sales should clock in at about $586 billion this year, up 4% from last year's haul. A good showing today can give a retailer momentum headed into that all-important winter season. A big gamble with a bad strategy, on the other hand, could make this one of your last holidays as a retailer. 

Online vs. offline
And the biggest battleground this year, as usual, is between clicks and bricks. Amazon.com (Nasdaq: AMZN  ) sparked controversy last year with its Price Check app, which encouraged shoppers to scan the barcode on an item they were planning on purchasing in a store. The app offered extra discounts to those who were persuaded to order the item from Amazon, instead. It worked so well that complaints came pouring in from competitors, retail associations, and even lawmakers in Washington.

What offline retailers were complaining about last year has grown into a major trend in the business. Companies like Best Buy (NYSE: BBY  ) are morphing into expensive showrooms for products that shoppers end up buying online. And the results aren't pretty. Just this week, Best Buy announced another drop in comparable store sales, turning in a performance that CEO Hubert Joly called "clearly unsatisfactory." Meanwhile, Amazon closed the books on a quarter marked by a dominating 30% bump in sales.

So this season, Best Buy and other bricks-and-mortar retailers are hitting back.

If you can't beat 'em, join 'em
Shoring up their defenses, Target (NYSE: TGT  ) and Best Buy both announced last month that they would match prices advertised by online competitors like Amazon. These B&M retailers are aiming to level the playing field, betting that with equal prices they can pry back a lot of the revenue they've been losing to e-commerce. They have instant gratification on their side, after all. Online retailers still can't deliver your purchase to you immediately, but they are trying.

Yet, the price-match strategy risks more than just lower margins for Target and Best Buy. They have to absorb expenses like trained staffing and costly store locations that online retailers get to skip.

But even if they manage to eat that extra cost, their shoppers could end up confused with the price-match policies. Not all products are covered by it, and not all websites count, either. So in practice, the gamble could harm the shopping experience and drive more customers to online shops anyway.

No defense like a good offense
As for offense, physical stores plan to take advantage of the Black Friday weekend with mobile technology this year. Wal-Mart, for example, has a new app for smartphones that boasts interactive store maps showing Black Friday shoppers exactly where the deals are located. And Macy's (NYSE: M  ) special holiday app alerts customers to unadvertised deals for every few minutes they stay in the store.

They may be on to something. Mobile commerce promises to be a hit with shoppers this year. Wal-Mart estimates that 40% of its holiday Web traffic will come from mobile devices. And 12% of the company's mobile sales already happen while customers are in their stores, suggesting that a lot of people just like the convenience of home delivery. So a strong mobile strategy could succeed in driving local sales. And it might just keep any "showrooming" to a company's own website, rather than off to competitors'.

Foolish takeaway
Still, with Cyber Monday on its heels, it's hard to see Black Friday winning this game. Last year, bricks-and-mortar retailers grew sales a respectable 6.6% over 2010's Black Friday. But for online's Cyber Monday, the sales growth was a much stronger 20%. Physical retailers are leaving it all on the field in their fight against holiday shopping relocating to the Web. But a lot of shoppers just prefer their living room to a crowded mall. It's safer, after all.

Get in the game
Everyone knows Amazon is the big bad wolf in the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of competitors'. We'll tell you what's driving the company's growth, and how to know when to buy and sell Amazon in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.


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