In this episode of Industry Focus: Consumer Goods, Emily Flippen chats with Motley Fool contributor Asit Sharma about one of the biggest consumer shopping days of the year, Black Friday. They get into how Black Friday originally started and dispel some myths surrounding its origins. They discuss the changing retail marketing and consumer buying trends over the years, how it's affecting holiday shopping days, and much more.

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This video was recorded on December 1, 2020.

Emily Flippen: Welcome to Industry Focus. Today is Tuesday, December 1st, and I'm your host Emily Flippen. For today's Consumer Goods episode, I am joined by The Motley Fool's Asit Sharma to talk about one of the biggest days in the year for consumer goods companies, that's Black Friday, and by extension Cyber Monday, which we just finished heading into today.

Asit, thank you so much for joining.

Asit Sharma: Emily, thanks as always for having me. I am so pumped to talk about shopping, my favorite activity.

Flippen: This is always a fun episode to tape during the year, because it seems like every year there's new exciting deals, there's different strategies that companies play to try to get consumers out and shopping on Black Friday, and clearly this year has been a little bit different. But before we get into the meat of it, I have to ask the fun question first, which is, did you buy anything on Black Friday, or I'll say Cyber Monday, let's include it together, Black Friday or Cyber Monday?

Sharma: So, I must say, Emily, I was being a little facetious there when I said that my favorite activity is shopping. [laughs] I didn't buy anything on Black Friday. But you know, let's extend this to my household, because actually we did. And I did notice, after you and I traded some notes, we actually picked up, I did, my wife and I picked up a $6 outdoor waterproof bag for some leaves, [laughs] but we did, we grabbed a deal for one of my teens, this is a Volador 40-inch maple longboard basic cruiser, that's a skateboard. And I think we got a pretty good deal. I think this must have been 25%, 30% off the normal price. So, yeah, we participated this year, how about yourself?

Flippen: I actually didn't, I expected that I would, I admittedly accelerated some of my purchases from the later than expected Amazon (NASDAQ:AMZN) Prime Day. That being said, I did find a great cat tower on Chewy that was 45% off, and I was so ready to buy it, but before I did, I ran it past my partner who immediately shot down the idea, because apparently we have too many cat toys in the house. I mean, I don't think so, but I guess you have to, you know, run these things past the people [laughs] you live with first. So, I almost bought something, but didn't.

Sharma: I'm sure your cat doesn't think that he or she has too many toys. It is the cat that we see often on Live, for those of you listening to Industry Focus podcast, this is the live version on Motley Fool, where you can actually see us in-person. And, of course, as so many of you know, Emily has a really gorgeous [laughs] cat. From the cat's perspective, come on! Come on, Emily! [laughs] But I get it. I get it, managing relationships and pets in a household, [laughs] I've been there.

Flippen: Well, I expect the cat will be getting a very generous Christmas present this year; I'm not travelling over Christmas, so maybe I can squeeze in a cat tower in December, we'll see. Oh, gosh! It's December 1st today; where has the time gone?

Sharma: Just looking forward to the end of the year. We're almost there. [laughs]

Flippen: [laughs] Exactly. And before we get into the meat of today's episode, and maybe this is repetitive for lots of our listeners, but I found this interesting and for anybody who doesn't know, we're going to be saying the words "Black Friday" a lot. And for a lot of listeners, maybe new investors or people who just otherwise don't enjoy shopping, let's say, they may not know what Black Friday is. So, can you explain to us what is Black Friday and why is it called Black Friday?

Sharma: Okay. So, Emily, I'm going to use some of your research here, so you correct me if I've got any of this wrong, but I think both of these are really [laughs] interesting stories. The first is probably apocryphal, and it's the one that I think most of us know, it's the one I knew, and that is that, this has to do with business profitability. So, when you operate at a loss, you're operating in the red, like, basic financial lingo. And the classic story is that Black Friday was born, because a year after operating, or most of the year in the red for retail companies, after the post-Thanksgiving period, that's such a big slate of time for these retailers, it's when so much of the year's sales and profits get booked, that the red goes to black. They marked down inventory to encourage the increasing flood of pre-holiday shoppers and they got into the black over that weekend.

But as you pointed out to me, this isn't actually the real story, the real story probably is this one. And I'm going to stick to that one, I really like that, just because I'm such a financial geek. [laughs] I love the idea of this. But in truth, this one is nicer. So, the real story is that this goes back to the chaos that used to follow the Friday after Thanksgiving in Philadelphia, when shoppers and tourists, having taken that Friday off in advance of the huge Army vs Navy football game that was held in Philly on the Saturday after Thanksgiving, they would start to descend and flood the city. And then the cops, the police, actually started calling it Black Friday, [laughs] because for them, it was the darkest Friday of the year, because they had to handle all these rowdy tourists. I'm sure some of these are filled with a little bit of a celebratory pregame alcohol. They were not allowed to take the time off. And as this shopping mania became a regular thing, the term spread around to other cities. And by the mid-1980s it was in widespread use across the U.S. So, that's a great story as well.

Flippen: [laughs] I know. I feel terrible, because while that story is from History.com, so I trust History.com here, I'll just say that, I'm not 100% sure. I feel terrible, because I've been spreading the misinformation that Black Friday comes from turning from negative in the red, to black to profitability around this time of the year. But, of course, it comes back to Philly; I read that and I got a chuckle from it. We'll see if that -- you know, I don't think that story is going to stick, but I like to mention it anyway.

And before we get into what Black Friday looked like this year, let's maybe rewind back to 2019, because that gives us a good idea and an anchor to what we have to compare to year-over-year. So, back in this imaginary year where people went outside without masks in stores and actually bought things in-person, there was actually, it's the best Black Friday we've ever seen in 2019. Around 40% of shoppers made at least one purchase on Black Friday last year, with the average spend a whopping $400, which represents over $7 billion in online sales. And like I said, it was the highest ever for Black Friday. And I was just amazed by the fact that the average spend was around $400. Clearly people getting advanced jump on their holiday shopping here.

So, before you had looked at any of the numbers for 2020, because we have a little bit of the preliminary numbers for Black Friday and Cyber Monday, we're taping this on Tuesday 1st, would you have taken the "over" or the "under" on spend for Black Friday this year in comparison to 2019?

Sharma: Okay. So, I would have taken the "under" on in-store purchases, but I would take the "over" on overall Black Friday spend, which, of course, includes the e-commerce bit. And here are my reasons, and as we get into actual numbers and we reveal [laughs] what results were, we can see where I was right and where I was wrong, but my rationale would be that the e-commerce bit is only growing, and the big online shopping entities, if you think about Amazon.com, also Shopify (NYSE:SHOP), and then just the hundreds and thousands of merchants that are moving online, I can sort of see the case for overall spending to increase. But at the same time, stimulus money has dried out now a couple of months ago, I think there's probably, I would guess, some selling exhaustion among consumers, and there have been many sales leading up to Black Friday -- we're going to discuss a little bit of that as well. So, I would actually say that the in-store account is going to go down.

Actually, [laughs] let me revise that answer. I just got influenced by numbers I saw this morning. Emily, we have it in the notes, I took the "under" on both. I said that, of course, the in-store shopping component was going to be down, that's pretty obvious, but I actually said that because of the factors I was just talking about, I thought the overall spend would be less this year, that that was going to decline too, so I actually took the "under" on both.

Flippen: I also would have taken the "under" on both. You mentioned two of the big forces that would have led me to believe people would spend less this year than the year before, stimulus checks, probably not getting a second stimulus check before the holidays, and unemployment being as high as it is, even if it's perceived as temporary, and then additionally, we have the closeness to Amazon Prime Day. Lots of accelerated shopping holidays closer to Black Friday this year than we've had in years past. All of these things led me to believe that we wouldn't see the heightened numbers of purchases that we did in 2019. But as everything in 2020 has proven so far, I am wrong [laughs] about all of my expectations. And sometimes you can apply logic, it doesn't necessarily apply to clearly how people are purchasing in this case. So, when you look at some of the preliminary numbers that we're seeing for Black Friday, you're right to say that in-store buying would be less; I think that that was a given. But online sales actually [laughs] grew 22% year-over-year to an all-time record. And that's just Black Friday, that's without considering Cyber Monday, which is, if preliminary numbers have us to believe, is even more impressive than it was last year. So, I would say, I'm squarely in the wrong on my assumptions heading into this holiday season.

Sharma: [laughs] Yeah, me too. You know, I saw a stat that Black Friday this year, it's still going to be the second biggest online shopping day in U.S. history, after Cyber Monday 2019. Likely to be the third biggest online shopping day ever, if the Cyber Monday that we just went through, if it surpasses last year's Cyber Monday, which looks like it will. So, yeah, I was wrong on both of those. I guess the consumer still has money in that wallet to spend. Not me, but I think maybe I'm in the minority there. [laughs]

Flippen: [laughs] And another thing that, kind of, led me to believe. I'm painting out all these reasons why my logic led me to believe we would see weaker holiday sales, but it's worth talking about. Part of the reason why I thought that we would see weaker sales for Black Friday was simply because of how brands and different retail businesses seem to be handling Black Friday this year. A lot of them were discounting earlier for longer periods of times, my impression would be that this would disincentivize people from purchasing at any one point in time, but what did you see, what's your opinion about how brands have managed this Black Friday sale?

Sharma: Yeah, I think in parts, there is some catch-up going on. We saw, so big brands like Nike and Under Armour, which had the earlier discounts, we saw them recovering from a really bad Spring in which, let's take Nike for example, so much of its commerce revolves on in-store visits, although it's got a robust e-commerce platform as well. You had customers who stayed away, and now these brands will try to make sure that they made up for some lost time. So, I see that is helping the retailers who anyway wanted to get back on track.

And this has been a trend for a few years, Emily, anyway, but I think, you know, from what you pointed out, it's true that it seems to have started much earlier this year in terms of big retail labels like Bed Bath & Beyond, Best Buy, Costco, Target, Lowe's, and Home Depots of the world, they had their early lead on November sales, it seems like at the beginning of the month. So, it was almost as if the retailers and the brands decided in lockstep, we're going to nab that consumer whether [laughs] he or she is suspecting it, or wants to buy or not, we're going to make it impossible to ignore us.

And some of the sales, you know, almost made you think that, if I don't take these now, I am going to get the same kind of discount after this sale is -- maybe Black Friday will be a disappointment, I won't get the deals I'm looking for. So, probably a smart strategy now that we've got the benefit of some preliminary numbers. And we could see that it worked out, both, for the brands and the retailers. It looks like there was definitely an appetite on the part of the consumer to take these offers.

Flippen: And what I think is really interesting, when you start to dig into these numbers, and we've reported here, right, in-store sales are down, but online sales are up. I think what's worth reiterating in that process is, just how the transformation has occurred for retail businesses that would be in-store, capabilities like in-store pickup or curbside pick-up, even delivery in some cases. These allowed people to meet halfway, right, meet the retailers halfway. So, it's less that people weren't going into the stores that they would have otherwise gone into and instead purchasing from Amazon. What I expect to be the case is that, people were actually going out for the brands and the names that they appreciate, they would normally want to buy from, and they were going out of their way to be like, OK, how can I purchase from this place that I would normally purchase on Black Friday without physically going into a store? So, I think that's the reason why we saw a big surge in online sales, isn't necessarily, I wouldn't say not at all, but isn't necessarily because Etsy and Amazon, which are e-commerce native brands, or Shopify-based stores, isn't because they suddenly got all the demand. I think demand exists for a lot of these classic in-store retail players; they just change the way that they're serving the market.

Sharma: Yeah, they did so much adapting throughout the pandemic, I think it did make it easier for them to be flexible and offer flexibility to customers. An example of this is, Walmart, Target and a lot of other big retailers actually closed most of their stores on Thanksgiving Day. The trend in the last few years has been to open up on Thanksgiving, which has been controversial, but this allowed them, I think, to go back to a model that existed a few years ago. And spacing those deals out during November made it easier from a financial perspective, they felt they didn't need the sales that they have been getting on Thanksgiving Day, and that they could make it up, both, before and after with the lead-in sales and Black Friday.

And you know, as you mentioned, because of this, that also reduces a little bit more pressure on those supply chains. And I think all-around, much of this is reflective of investments that have been made well before the pandemic, it's just as we've talked about before, this year has been a good stress-test for a lot of retailers, and the really strong ones, who made the investments in having inventory in-store, being able to deliver it locally, having to buy online pickup in-store, they are reaping the fruit not just through the Spring and the Summer but into this holiday season as we're seeing from some of these early retail numbers.

Flippen: And both just made really good cases for why the next question I ask you is a resounding "no," but I have to ask it anyway, because I feel like I can also make a case for the other side, which is Amazon accounted for just under 55% of all sales on Black Friday in 2019. Is Black Friday just becoming another Amazon Prime Day?

Sharma: [laughs] Well, this is a hard one for me, because Amazon is so dominant, but you know I will say that they have given the holiday leg. So, if you are getting consumers excited about Black Friday then some of that may be spilling over, not this year, [laughs] because for anyone who saw maybe, there was a great article in The New York Times about how empty Macy's stores looked during Black Friday or some other, pick any well-known retailer. If in future years this gets you in the mood to buy some stuff from Amazon and then maybe also try to get in on a local sale, maybe you show up at midnight on -- or 12:01 on Friday morning, I think that is, sort of, good for Black Friday, but are they killing and turning it into a second Amazon Prime Day? I don't know. You know, Emily, they moved that first Prime Day or their Prime Day all the way to October this year, they still seem to have done [laughs] pretty well on Black Friday.

But man! Amazon is just such a dominant looming living presence over any period that you look on the map during the calendar year for retailers. Amazon is just such a big part of it now, and we increasingly are trusting Amazon and other retailers to just shop online. It's hard not to see the influence. What are your thoughts?

Flippen: I think I agree with you. I think there's less pressure on big brands in particular, brands that have a lot of sway with consumers, to cut prices for something like an Amazon Prime Day, the way that there is for Black Friday sales. There's an expectation there that if you're selling anything [laughs] around the holiday season and the period after Thanksgiving and the week after that, you're offering a discount, whether it's a real discount or you up-marked then discounted after the fact, either way, I think there's a pressure on brands to make that change for something like Black Friday or Cyber Monday, in comparison to Amazon Prime.

I say that, though, and early numbers for Amazon sales in 2020 said there was around a 60% increase in online sales on Amazon during Black Friday in comparison to last year. So, regardless of all of these things you mentioned, Amazon is still getting their fair share or more so, of the pie. I almost remember something that restaurants say about businesses like DoorDash or GrubHub, which is, it's almost like this necessary evil. You hate the business, they take a lot of your money, but if you're not on them then you don't exist. And for a lot of smaller brands, in particular, they hate Amazon, they hate their business practices, but if they're not on Amazon then when people go to shop for Black Friday, they're not specifically seeking out that brand. It might show up in a search on Amazon, they might buy it then, but unless you're a Nike of the world, unless you're like a Dyson or you're a brand that people know they want to buy, they're probably not going out of their way to specifically search on your site for deals or discounts, which makes Amazon this necessary evil.

Sharma: Yeah. I mean, it compels you to participate. We saw this, I think, manifested the last two years in Shopify's numbers. So, Shopify being the company that allows you or me to open up that storefront. Their Black Friday sales this year, they hit a record of $2.4 billion in merchandise transacted over their platform. That increased 75% over last year. And I think that's totally being driven [laughs] by Amazon, because if you're running a storefront and you know that someone who's on Amazon, maybe a competing product, is going to be discounting on Black Friday, then you're compelled to discount as well. I mean, there's probably also just the idea that it's such a great shopping holiday, let's incentivize customers to buy from us on our storefront. So, I don't want to say that there's not a positive aspect to how big the holiday is, that has to do with, both, physical in-store retail and e-commerce, but I suspect that juggernaut Amazon.com is forcing so many people who are either on their own platform or through Shopify or some other competing, smaller competing platforms, to go ahead and offer those discounts for FOMO, fear of being left out, fear of missing out, on potential revenue.

Flippen: Definitely. And you know, before we end off on today's show, I want to ask you the question which I've titled this episode, and I think it's an important question when thinking about Black Friday, when [laughs] and it's existential, but is Black Friday dead? And the reason why I ask and the reason why I think my answer could be "yes," believe it or not, is because of the transition that we've seen for Black Friday over the past decade or so.

Back when Black Friday was popular, I'm going back to the '80s and '90s, it was these big-box consumer retail companies that were discounting a lot of their stuff in-store, they were thriving, but as companies made digital shifts throughout the past few years, there's still demand for in-person shopping, but more and more of those sales are happening online. When those sales start to happen online, and this is my experience, we become increasingly aware as consumers that what we're being told are deals, aren't such great deals after all. Not only has Cyber Monday, I think, taken away some of the excitement for buying things on Black Friday, but with platforms -- I know I use Honey, for instance, which tracks prices on any site, including Amazon, we as consumers have more transparency into the prices that we're paying. There were a number of things I looked at buying on Black Friday, that when I pulled up the 120-day price chart on Honey, I realized had been discounted to that same exact price for the past three months at different periods of time, which takes away the necessity for me as a consumer to go out of my way to make a purchase on that particular date. So, it takes that sense of urgency away, which maybe delays purchasing throughout a longer period, as opposed to just on a singular day.

And then lastly, I realize I'm monologuing here, I apologize. I'm going to pass the question off to you, but the other reason why I think that it could be dead, a good argument could be made that it's dead, and we talked about it earlier, is that brands have now started making their own Black Fridays. Amazon has Prime Day. There are discount days for Walmart and Target, where they're going after really engaged consumers to get them to purchase earlier and at different points throughout the year, which again, makes, in my opinion, a day like Black Friday, just increasingly irrelevant.

But, I mean, all the stats we talked about, up into this point, are clearly painting a different picture in terms of the average consumers. So, I want to pass the question off to you, what do you think, is Black Friday dead?

Sharma: Black Friday is dead; long live Black Friday. [laughs] Not totally dead. I don't know, Emily, you know, even after we put this pandemic behind us, it's in the rearview mirror, I think physical retailers are probably still going to benefit from enticing that specific part of the population that just loves to get out and shop for deals after Thanksgiving, those for whom it's ritualized celebratory type outing, not me, but I know there are plenty who do enjoy that. And I'm thinking that the conversion of Black Friday to an increasingly online event is going to maybe help release some pent-up frenzy next year that's unleashed on behalf of hardcore shoppers. [laughs] Now, I could -- and probably we'll be totally wrong on this -- but I think there's some aspect of it that's going to continue within the physical retail world. But you know, it also depends. I mean, how much are major retailers, like, Walmart, Target, Kohl's, Macy's, etc., how much are they going to benefit by maintaining store traffic on Black Friday versus just shifting more and more to e-commerce? There is something in it for these companies to have people come into the stores in a great mood after Thanksgiving, and that it does solidify a little bit of the bond with the local store. And keeping customers engaged with their local stores via a fun Black Friday sales, it pays dividends down the road, because we have to remember, these retailers do rely on in-store traffic the rest of the year for the bulk of their sales, they're covering fixed overhead by the store traffic, and they've got too much of an investment in this really, like, wide network of physical stores, the major retailers, anyway, to do anything, but have a dual model between physical and e-commerce retail.

So, I don't know, weirdly enough, maybe Black Friday becomes the differentiator from this just ever increasingly homogeneous environment of deals all the time, and maybe we have a need and a hunger to actually get outdoors and shop. [laughs] I don't know. So, I don't think it's totally dead, [laughs] I think you're on the right track, though, it's on the deathbed, so we may see it totally go away.

I will say, and I should say, for those of you who aren't familiar with the tool that Emily mentioned, Honey, which is a really interesting company in and of itself that was acquired by PayPal, I have it as, I think, a chrome plugin, Emily. And it's really helped me as well before I make a purchase decision, because it very visually tells you, as you are saying, when an item goes on discount during the year, so helpful. So, for those of you who don't have it, check it out.

Flippen: I am getting a chuckle, because Honey, in particular, is an interesting business. We could probably do an entire show about Honey. It's not public, it was, as you mentioned, acquired by PayPal for, I think it was $4 billion, it's a huge amount of money for a private company, it did get a lot of press. But it's funny, because I was having this conversation, my boyfriend works in cybersecurity, and we're having a remote video call with some of his friends who are also in the industry, and we are debating about the legitimacy of honey. I mentioned how much I love using it. I'm straight in their target demographic, right, I'm a 26-year-old female who purchases online a lot. So, that's their core user. I love it because it tracks purchases for me, applies discount codes, and for anything it doesn't get a discount code to, I get what's called a honey cashback or Honey Gold. And you can cash it in for gift cards, if you collect enough of it.

So, for me it felt like free money, why is not everybody using this. But of course my partner and his friends being in the cybersecurity industry, we're all put out by the data that businesses like honey collect on you, and the value of that data to them as a consumer having sent in to my shopping trends, whereas I'm much more concerned about that $5 I get at the end of the month for my online [laughs] purchases from Honey. So, I love the business, but it's not without its own controversies.

Sharma: Always an upside and a downside.

Flippen: Always. Well, that was a derailment. I apologize. But let's fast-forward into 2021. You mentioned that we could have this need for going outside again, this need for physical shopping that we've been deprived of for the past year, but what will it take for you as an individual to line up outside of a store at midnight on Black Friday next year?

Sharma: Yeah, Emily, I put some thought behind this one, because I'm not your typical get out there and get in line and elbow your way and fight for those deals, but here's what it'll take. I'm thinking that my local Best Buy offers a laptop that I'm looking at. This is the HP Spectre laptop. It's got a touchscreen. The one I'm looking at has an eleventh generation i7 processor, 16 gigs of ram, a solid-state hard drive with lots and lots of memory, and an Nvidia GeForce graphics package. If they offer that for $500 -- I think I'm looking at a $2,000 laptop, and let's say, give me some hot cocoa when I'm in line or maybe a local draft beer here while I'm standing in line, also, if they have one of my favorite writers, this is the Japanese surrealist fiction novelist Haruki Murakami, if he's signing copies of his latest novel at the door, then I'm thinking, maybe I get out of my house and stand in the line. [laughs] It's going to take a lot.

Flippen: I also thought about what it could take for me to get out of my house at midnight. I am not a late-night person, let's be clear here. I'm in bed by 9:00 PM. I actually -- I'm getting a chuckle from it, though, because you mentioned earlier that people just want deals and you can only stack deals for so long. I would want deals on deals on deals. What comes to mind is, if my local, maybe Marshalls or Ross, those already discounted stores, came out and they said, look, everything in the store is 50% off, you know, line up at midnight. I think I would do it, and I think it would be a mad rush of people that would be reminiscent of what we saw in the '90s and the early 2000s in terms of Black Friday rushes, but I think I'd be in line for that.

Sharma: That could be enticing. [laughs] Maybe TJ Maxx for me. So, take another 50% off, maybe. [laughs]

Flippen: [laughs] Well, I doubt either of those things are going to happen next year, but I'll keep my eyes out, maybe we'll be proven wrong.

Sharma: [laughs] Well, we can always hope.

Flippen: [laughs] Well, Asit, as always, thank you so much for taking the time out of your day and joining us for this episode of Industry Focus.

Sharma: A pleasure. Thank you, Emily.

Flippen: And listeners, that does it for this episode. If you have any questions, you can always shoot us an email at IndustryFocus@Fool.com or reach out to us on Twitter @MFIndustryFocus.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for his work behind the screen today. For Asit Sharma, I'm Emily Flippen, thanks for listening and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.