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11/27/2013 06:00 pm ET | Updated Jan 27, 2014

What Are the Economics Behind the Black Friday Sales?

This question originally appeared on Quora.
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Answer by Dan Holliday, Former manager @ Target, Walmart, Costco and Kohl's

Well, the obvious part is to make money. (DUH) But the more subtle part of Black Friday is to get you to buy shit you don't need or shit that is a hell of a lot cheaper elsewhere†.

I wrote an answer last year: Dan Holliday's answer to Black Friday: What are good Black Friday shopping hacks?

You have to understand how retail works. Most big box stores like Walmart already make next to nothing (or lose money) on a lot of the big products you see: TV's, computers, etc. They sell so few of them and the competition is so hot for these items that the three they sell each day with (liberally) a $15 profit amounts to nothing. Zip.

So why sell them? Two reasons:  Today and Tomorrow.

TODAY -- If you buy the TV & blu-ray today, you will need cables and surge protectors. You'll probably be talked into the extended warranty (which, for big items, I actually believe in -- and remember, I'm a veteran retail manager, but that debate for another time). You will grab a few videos. All of these are "sundries" and they are pure, hot, molten profit. The markup on these items can be 1000%. This is where the money is.

TOMORROW -- Likewise, if you're a Walmart shopper for your TV and blu-ray, then you're likely a Walmart shopper for a lot of other things. So by getting you to buy your entertainment center there, they've "primed the pump" (so to speak) and you'll be back down the road for more blu-rays, probably cables, and a bunch of other things.

This is sort of what Black Friday is all about. But hold that thought a second because I'm going to contradict myself. Black Friday really isn't that big of a deal anymore. YES, it's a big deal because everybody wants strong numbers. But, in the past 10 years with the upsurge of online sales and people saying, "F***these crowds," retailers have just extended "Black Friday" into "Black Thursday Evening through Black Sunday." People want more time to get the great deals, so it's more-or-less a whole Black Weekend.

But it's still not just about the sales of those items that got you in there. It's about getting you to pick up those hideous snowflake flannel pajama pants, that lame looking snow globe at the checkout lane, those insulated socks on an endcap, a few Christmas ornaments from the Holiday Shop and -- of course -- that useless book: "Mom's Cherished Holiday Recipes" . . . . five of them . . . to give to friends. All that big "big ticket" shit you're buying? It's being sold at a loss just to get you in there to buy all that little stuff that you don't think is costing you much.

And they know you'll buy that other stuff. Know why? Because history has shown that sleepy customers have no impulse control (your higher functions don't work) when multiplied by the "excitement" of the moment = you emptying your pocketbook. There's a "be in the moment" attitude that people have on Black Friday that usually makes them spend more than they should and buy a whole heap of garbage that they will never use (and that will be thrown away by the end of January). 

For Christmas, I don't buy junk. Never. Rick and I spend a lot of time thinking about what we buy each other. There are generally no useless gifts because we loathe that kind of shit and because -- after years in retail -- I know all of their trixy little games. 


†If you need cables, for Vishnu's sake, go to an online cable store like www.monoprice.com and get them for like 1/10th the cost you'll pay in Walmart and most definitely that giant hole of stinky shit called "Best Buy."

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