CINCINNATI -- An estimated 97 million people are expected to be out in full force to shop this Black Friday, hoping to cash in on the year’s best deals.
But are they really just being ripped off?
Black Friday shines bright when it comes to holiday shopping. Weeks, sometimes even months before the big day, retailers will release a catalog of deals that make the mouths of consumers water.
But retail-industry veterans tell The Wall Street Journal (WSJ) most of those bargains are actually carefully engineered illusions.
Most shoppers assume retailers stock up on goods and then mark down the ones that don't sell, taking a hit to their profits. But if you think that, you’re wrong in most cases.
Instead, WSJ reports many big retailers set starting prices that, after all the markdowns, will give them the profit margins they want.
For example, that blue cashmere sweater on sale for more than 50 percent off at $89.99 was never meant to sell at its $179.99 starting price. It was designed with that discount built in.
To prove this theory of “retail theater,” WSJ cites stats from Savings.com, a website that tracks online coupons.
According to the site, the number of deals offered by 31 major department stores and apparel retailers increased 63 percent between 2009 to 2012. And the average discount jumped from 25 percent to 36 percent.
Over that same period, the gross margins of the same retailers – the difference between what they paid for goods and the price at which they sold them – remained the same at 27.9 percent, meaning these bargains you thought you were getting are really just a fantasy.
Another example cited by WSJ is a 60-inch Samsung HDTV being sold by Amazon.com in its 2013 Holiday Gift Guide. The TV is selling at a 45 percent discount to its list price of $1,799.99. But, according to Decide.com, a price-tracking firm owned by eBay Inc., the TV hasn't sold for anywhere near that list price in months.
WSJ reports the most it has sold for in the past eight months is $1,297.85 – and as recently as October, it was priced at $997.99, about the same as its current sale price.
And the worst tactic used by giant retailers before the biggest shopping day of the year? Raising prices.
Yes, you read that right. The prices are actually going up.
The trick involves raising selling prices ahead of the holidays before the discounts roll in.
In a WSJ analysis – which looked at the online price fluctuations of 1,743 products in November 2012 – prices climbed an average of 8 percent in the weeks leading up to Thanksgiving for about a fifth of the products being monitored. These items were then discounted on Black Friday.
Toys and tools had the biggest pre-Black Friday price increases – about 23 percent.
To read the full analysis, click here.
To see our full Black Friday guide, click here