Are Black Friday Discounts Really a Sham?

If you're reading this, it means you survived the madness that is Black Friday, and for that we congratulate you. Not all Black Friday shoppers are jerks, but if you're braving the crowds on the busiest shopping day of the year, you're bound to run into at least a few. Times are tough all around and the allure of saving big money has a tendency to bring out the worst in some people. This begs the question, are the savings worth it?

In some cases, a strong argument can be made for waiting in long lines, especially for electronics. Big screen TVs, laptops, and other electronics end up heavily discounted. Often times these are older models that need cleared out of inventory, as the tech industry is constantly evolving.

However, discounts aren't always what they seem. The Wall Street Journal did a little investigating and found out what most of us already knew or assumed, which is that many items are designed to sell with the discount already built-in. WSJ used the example of a red cardigan sweater marked down 40 percent to $39.99. Seems like one heck of a deal, except that the sweater was never intended to sell for its original $68 price tag to begin with.


"A lot of the discount is already priced into the product. That's why you see much more stable margins," Liz Dunn, an analyst with Macquarie Equities Research, told WSJ.

An industry consultant provided a real world example of a sweater being sold at a major retailer. The way it works is the supplier sells the sweater to the retailer for around $14.40. It has a suggested retail price of $50, giving the retailer a 70 percent markup to play with. A small number sell at that price, but many more sell at the first discount that brings the price down to $44.99, and the majority of sales occur at the final discount of $21.99. When all the numbers are crunched, the average retail price is $28, giving the store a 45 percent margin over what it originally paid. Again, this is all planned out ahead of time.

Black Friday sales used to be about clearing out unsold inventory, but for the most part, it doesn't work that way anymore. Stores looking to stand out from the crowd discovered that shoppers are enamored with big discounts, so that's what you see today -- overpriced goods with huge markdowns to create the illusion of value.

There's a lot more to it than that. Give the source article a read before the next time you go sale shopping.