Get any shopping done over the holiday weekend?

With the amount of hype surrounding Black Friday and its younger sibling, Cyber Monday, these two days should be critical for every retailer across the country. But as consumer tastes change, so do the strategies of retailers themselves.

Join The Motley Fool's Sean O'Reilly and Vincent Shen as they explore just how important Black Friday and Cyber Monday truly are when it comes to fourth quarter earnings.

A full transcript follows the video.

 

This podcast was recorded on Nov. 24, 2015.

Sean O'Reilly: We're going Black Friday shopping, on this consumer-goods edition of Industry Focus.

Greetings, Fools! I am Sean O'Reilly here at Fool headquarters in Alexandria Va. It is Tuesday, Nov. 24, 2015, and joining me today is a prince among men, Mr. Vincent Shen. Vince, Happy Thanksgiving!

Vincent Shen: Happy Thanksgiving, Sean.

O'Reilly: How are you doing? Any big plans? You're going home to New Jersey, I assume.

Shen: Yeah, just want to see family, spend time with them. Not sure if I will be doing that much shopping, though. A lot of other people will be when we talk about it on the show today.

O'Reilly: Guess what I'm doing? Not only are my family, my wife and son, and I staying here -- we're from the Midwest -- but I am making the turkey.

Shen: Oh, really?

O'Reilly: This will not end well. There's actually no possible outcome that's going to be good for anybody, but we're doing it. Anyway, so we are talking about Black Friday.

Shen: Sure.

O'Reilly: The day when people trample their fellow human beings trying to get into the door of a Best Buy, trying to get a discounted flat-screen TV.

Shen: I try not to look at it too cynically, but yeah.

O'Reilly: People die, Vince.

Shen: People have died during Black Friday shopping frenzies, that's true.

O'Reilly: To our listeners, please be kind. Don't kill anybody on Black Friday. So first and foremost, I actually wanted to do, and I'm actually really excited to see what you found, the history of Black Friday. How did it start? When did it start?

Shen: Sure, sure. So the history ...

O'Reilly: Why is it called ... yeah, I mean.

Shen: The history's a bit murky, actually. You know, traditionally I think most people will say or a lot of retailers will argue that throughout the lion's share of the year, through the first 11 months almost, they're operating at a loss. So they're in the red.

O'Reilly: Or breakeven.

Shen: On the books ...

O'Reilly: Yeah.

Shen: Exactly. And the heightened shopping activity for retailers on that Friday after Thanksgiving is the opportunity for them to move enough merchandise and generate enough sales to essentially move them into the black or into profitability, hence the term Black Friday. That's what's generally argued by a lot of people.

O'Reilly: That was one of the first things I noticed when I you, know, little 15-, 16-year-old Sean first looked at these quarterly reports from a couple of retailers. I was a nerdy kid. And you see, like, the revenue numbers for the fourth quarter -- gangbusters. Rest of the year, it's like, yeah, whatever.

Shen: Sure, it even impacts the reporting in their fiscal quarters.

O'Reilly: Right. You'll notice that all their quarters end like, what, Dec. 31, Jan. 2, or something?

Shen: Yeah. So a lot of them will incorporate the holiday.

O'Reilly: I'm sorry, Jan. 31, Feb. 2, something like that.

Shen: Exactly.

O'Reilly: Anyway.

Shen: So that's commonly been argued as the history behind it, but there's actually a lot of other, I guess a lot of other interpretations. So that includes something a little more controversial, where there were some suggestions that the name actually originates from a practice in the 19th century, when Southern slave owners could buy slaves after Thanksgiving at a discount.

O'Reilly: That's easily the worst thing I've ever heard. I mean, like, not the worst, but that's up there.

Shen: That's generally been discredited, and most people agree that the real, I guess, source of the term actually comes from the City of Brotherly Love, Philadelphia, where after Thanksgiving there'd be a lot of shoppers, tourists flocking to the city, not only for Friday shopping and just over the weekend too, but there's, like, the traditional Army-Navy game that takes place on Saturday. So a lot of people are in town for that, a lot of police don't get the day off on that Friday because of all the extra foot traffic, vehicle traffic, all the stores because there's so much activity ... chaotic. There's more shoplifting, so police started referring to that day after Thanksgiving as Black Friday.

And this really took hold in the '50s through the '60s, and some of the stores in the area didn't like that, so they tried a PR campaign to essentially change the name to, like ...

O'Reilly: To make it a positive event.

Shen: Yeah, to make it Big Friday. Never took hold. So the term, though, didn't really expand to the rest of the U.S. until, I think, it was about the '80s, and then since then retailers themselves have really seized upon the term.

O'Reilly: The birth of modern American consumerism.

Shen: And they turned it into an opportunity to have these really strong sales numbers each year. And so generally, that's where the term came from.

O'Reilly: Wow. So now we're here in the Internet age, and regular traditional retailers get their Black Friday. Internet retailers, seeing the success and what happens to Macy's, J.C. Penney, Best Buy, everybody, created their own day.

Shen: Cyber Monday.

O'Reilly: Will this never end?

Shen: So Cyber Monday is not nearly as rich in history as Black Friday.

O'Reilly: I am starting Sean Tuesday. Everybody gives me stuff.

Shen: Not the worst idea. But for Cyber Monday, that was actually created very recently, the past 10 years. So in 2005, the National Retail Federation put out a press release basically saying they're seeing this trend where the Monday after Thanksgiving is quickly becoming the biggest online sales day of the year for them. And so ...

O'Reilly: We're looking at you, Amazon.com. We know you started it.

Shen: Well, and, this makes a lot of sense, right? Because it kind of grew in step with the overall growth of e-commerce as a percentage of total retail sales.

O'Reilly: So how big? I mean, give some numbers here.

Shen: So Cyber Monday, it really did grow very quickly. So in 2005, when that first press release came out, I think it was $500 million of sales for the day. And then by 2010 it had in fact become the biggest online shopping day. And now it's at $2.5 billion.

Shen: So in the past 10 years it's grown 5 times, fivefold.

O'Reilly: Ten years, fivefold. Wow.

Shen: And just keep in mind, too, that e-commerce in the U.S. has grown from 2.6% to 7.4% of total U.S. retail sales over that same time period. So, again, very much correlated.

O'Reilly: Wow, cool. Well, before we move on to discussing what we know about the average shopper, I wanted to point our listeners to be newly redesigned focus.fool.com. There you'll discover a special offer to join the Motley Fool Stock Advisor newsletter for all Industry Focus listeners.

All loyal IF listeners have access to a special discount on Stock Advisor that works out $129 for a full two-year subscription. Just go to focus.fool.com to take advantage of this offer. Once again, that is focus.fool.com.

So, Vince, now that we know the sordid history of the birth of Black Friday and what's become Cyber Monday now, what do we know about the average person that goes out on Black Friday? My mother -- if you're listening, I know exactly what your Friday plans are, and I know you're going to be at Target at, I don't know, 7 p.m. or whenever they open, and buy a bunch of discounted DVDs or something.

Shen: Oh, she goes on Thanksgiving Day?

O'Reilly: No, yeah, she, you know what it was, I was home a couple years ago and there's like, "Oh I'll just go to Target to buy a bunch of stuff." They came home with like a bag of stuff, like a bunch of discounted DVDs, and they got like a little Christmas tree or whatever. I think it was just my mom and my sister, Bonnie, and doing something wacky. Like, they weren't hardcore there trying to get all their Christmas shopping done or anything like that.

Nobody in my family, to my knowledge, has bought an Xbox or a TV or anything on Black Friday.

Shen: They are, I'd say, among the majority. We have to keep in mind that, again, the National Retail Federation, they're estimating that for this weekend, call it Thanksgiving through Cyber Monday, they're expecting about 135 million shoppers to be out and about.

O'Reilly: What's the U.S. population?

Shen: A little over, I think, 330 now? ... So huge numbers.

O'Reilly: Wow.

Shen: Huge numbers, OK? Really, really mind-blowing. And the thing is, the same survey also noted that about 185 million shoppers could end up participating in Cyber Monday.

O'Reilly: Wow. I kind of want to do it just to be included now.

Shen: And the thing is, on average, consumers spend about $400 over the weekend.

O'Reilly: That high? Wow, OK.

Shen: Pretty impressive. And IBM actually had this really cool report about Black Friday and Cyber Monday for 2014 and had some really interesting data about when people shop, what they're getting, if they're doing online, on mobile, in person at the stores.

So, for example, shopping -- so for Thanksgiving Day, shopping levels at midnight are a little high. They're a little more elevated, but they'll obviously fall to their bottom around 2:30 a.m. -- everybody's in bed, naturally, by that point. But they pick up pretty quickly, I think, around, like, 5 a.m., and they peak by 8 to 9 a.m. And then that will gradually slow down throughout the day until about 9 p.m.

There's a small spike around 5, naturally, I think, when the people who do have to work on Black Friday potentially get out and get their shopping done. And the thing is, on Black Friday, mobile traffic accounted for about half of all online traffic that day. And mobile sales actually counted for 20% of total online sales. So both of these figures are up at least 25% from their ...

O'Reilly: So are people going in ...

Shen: Fourteen, 13 figures.

O'Reilly: Sorry to interrupt.

Shen: Go ahead.

O'Reilly: Are people going in the Best Buy and then seeing the prices, then ordering on Amazon? Or are they just go in Best Buy and ordering on BestBuy.com because they see the line? Like, what's happening?

Shen: I think that's the big part of the trend is in terms, especially for the mobile traffic, is the fact that with the prevalence of smartphones now, people have a lot of resources to either order things online just from the comfort of their couch, but also to compare prices. And find out maybe which Best Buy near them, for example, has that computer or that laptop in stock. You know what I mean?

O'Reilly: Wow, yeah. Jeez.

Shen: So that's ...

O'Reilly: There has to be some line aversion there.

Shen: So that increasing mobile target is a really interesting part of the trend that they're seeing for this holiday weekend over the past few years.

Another interesting thing is that New York City, D.C., Atlanta, Los Angeles, and Chicago, in that order, came out as the top five most popular cities for online shopping on Black Friday. Not all that surprised, right?

O'Reilly: That's not surprising, yeah.

Shen: I've done Black Friday in New York City, and it is as chaotic as you would expect it to be in a city that big. It's already so crowded.

O'Reilly: Did you see anything? What was the craziest thing you saw?

Shen: Just lines out the door, around the block ...

O'Reilly: Why? Just why?

Shen: ... at some of these stores.

O'Reilly: What discount is possibly good enough?

Shen: It wasn't exactly warm, either.

O'Reilly: Yeah.

Shen: So people were really bearing the cold to get some of these deals.

O'Reilly: What discount, I don't ...

Shen: So another really interesting trend is the dichotomy between Android and Apple users.

O'Reilly: For what? Ordering things?

Shen: This is for mobile.

O'Reilly: Yeah.

Shen: So this is for mobile. So iOS versus Android, right? Apple users spent about $122 per order versus $98 for Android. So we've heard about how developers for apps generally prefer to try and hit Apple because Apple owners have, they've done studies that have shown they're generally more affluent, bigger spenders. And that's kind of reflected here in the difference, right? Also, Apple users, their sales accounted for 22% of total online sales, whereas Android made up just 6%. So again, you're seeing that trend where people seem to be getting a better bottom-line effect from these users.

Cyber Monday reflected a lot of the same trends. The one thing that is not too surprising, but in terms of the trends throughout the day by hour in terms of shopping activity, naturally a lot of people have to work that Monday. So the peak, instead of being around 8 to 9 in the morning like it is on Black Friday, it's actually around 6 to 9 p.m., when those people get out of work.

O'Reilly: Yeah.

Shen: So it's just an interesting trend that I saw. And that kind of paints a picture in terms of what people can expect from shoppers over this weekend.

O'Reilly: Cool. OK, so, this is The Motley Fool, we're talking about consumer-goods investing. Does Black Friday matter anymore to retailers? Because with these discounts and everything, I have to assume they actually aren't making any money. And they're generating revenue, but profitability can't be there.

Shen: The thing is, you think that a lot of these stores are taking losses on these doorbuster deals, they're selling, like, big TVs for $100 or whatever. But the thing is, that's just to get people in the door.

O'Reilly: That's the scam.

Shen: Sure, some people are going to be in line just for that one deal. They'll only buy that and they'll go home. They're very disciplined that way. But honest;y it's not going to be the case for, I think, the large majority of shoppers who will browse around, see what else they might find, and that's where a lot of these stores make their money.

The thing is also, you know, with the amount of coverage around Black Friday, there's dozens of sites that will track the deals that each store's offering, be it Target or Wal-Mart, Amazon, whatever. And then, obviously, a lot of dedicated, millions of dedicated shoppers looking forward to this weekend, like, the thing is, the hype can't really be backed in terms of actual, like, top-line percentage of sales numbers.

So when you look at the broader time horizon, consider the fact that a lot of retailers consider the holiday shopping season now to be the full months of November and December, whereas before it might've started on Black Friday.

O'Reilly: Right.

Shen: So ...

O'Reilly: Or at 6 p.m. on Thanksgiving.

Shen: Exactly. So the deals are already taking place very early on in November, and you also have to keep in mind that, so, if we look at look at e-commerce sales as a proxy for broader shopping habits and trends, retailers logged, from the five days from Thanksgiving through Cyber Monday, about 12.3% of their total online sales in that two-month period of November and December.

O'Reilly: Wow.

Shen: The thing is, it's higher. It's elevated, but you also have to keep in mind that that five-day period of the 61 days in those two months makes up 8% of the available days anyway. So it's certainly heightened, but not to the extent that, in my opinion, I guess would deserve the kind of hype that we generally see around these couple of days. More importantly, though, I think the big change for a lot of retailers or the big strategic implication is a lot of the seasonal hiring.

There are estimates that basically retailers will hire about 750,000 seasonal employees for the final quarter of the year. And that's where things get really interesting, because from CNBC I had some numbers where Amazon, for example, was going to hire 100,000 seasonal workers for the holidays.

O'Reilly: Fort he next couple of months.

Shen: Yep. Just to help with their fulfillment and their sorting centers.

O'Reilly: That would be like the 50 largest towns in America or something, if you just had all those people in one place.

Shen: Really crazy how many people ...

O'Reilly: My hometown has, like, 40.

Shen: Yeah, mine, too. So, and not unique to that, and Amazon's not the only ones who are doing that. Macy's is hiring 85,000, Target's bringing in 70,000, Kohl's hiring 69,000, I think they're going to try and add, like, 50 sales associates to every location they have. And they have like, over, 1,000 locations. So that's where the numbers come about, right?

Wal-Mart is in an interesting place because they're hiring 60,000 seasonal workers. But the thing is, they're sticking to that wage increase that they implemented earlier this year of $9 per hour.

O'Reilly: I was about to say, $10, yeah.

Shen: That includes the seasonal workers. So the things is, rising labor costs already kind of hurt their profits a little bit in the past few quarters and their reports, and they've been dinged on that by the market.

O'Reilly: Right.

Shen: I'm really interested to see how this plays into their, you know, a really big quarter for them again, where they have this additional hiring. And they actually keep, I think, they stated that they keep some 50% or more of the associates they hire during the seasons. So it's a big swing for them in terms of their numbers. And then also Toys "R" Us again, bringing 40,000 hires, J.C. Penney hiring 30,000, which is down a little bit from last year.

O'Reilly: They closed a few stores.

Shen: Because they closed quite a few stores.

O'Reilly: Yeah.

Shen: So, you know, overall, like, looking back on all this, ultimately it's just a nice excuse. Everybody's home for Thanksgiving. A lot of people have the day off on Friday, or at least more free time than they usually would over the weekend. So the shopping thing has just become a tradition here. And it's not make or break for retailers.

O'Reilly: Right.

Shen: But there are obviously big implications, and I'd look at it more so as the entire shopping season of November and December being the key for retailers overall. Not just this one weekend.

O'Reilly: Awesome. Well thank you for your thoughts, Vince.

Shen: Thanks, Sean.

O'Reilly: Happy Thanksgiving!

Shen: Happy Thanksgiving!

O'Reilly: And if you are a loyal listener and have questions or comments, we'd love to hear from you. Just email us at industryfocus@fool.com. Again that's industryfocus@fool.com.

And if you found this discussion informative, The Motley Fool is putting out lots of great Black Friday-focused content. So head over to Fool.com once you've recovered from your tryptophan coma.

As always, people in this program may have interest in the stocks they talk about. And The Motley Fool may have formal recommendations for or against those stocks. So don't buy or sell anything based solely on what you hear on this program. For Vincent Shen, I'm Sean O'Reilly. Thanks for listening, and Happy Thanksgiving!

Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.