Will you be helping to swell Amazon’s profits on Black Friday?
- Credit: AP
Peter Sharkey on another of those American 'traditions' we seem to have imported from across the Atlantic. Pull in your elbows, everyone...
I love watching those news reports from the high street where shoppers wrestle, shove and hand-off others in an often vain attempt to secure a piece of non-essential electrical equipment, or an even larger TV than the one they currently own, for what is considered a bargain.
Some people threaten fellow shoppers with physical violence if they don't take their hands off the box containing a 65-inch, 4k, Ultra HD, HDR Smart TV with go-fast stripes on which they happen to have a marginally better grip than their adversaries. Crazy. And bad for the blood pressure too.
The same folks will be at it next week when Black Friday presents them with another opportunity to throw a sicky and head to the shops in search of a bargain. Well, fewer of them will. Last year's BF was a disappointment for high street retailers as footfall fell by 7% compared with 2015, while online sales rose 25%. It's a trend we can expect to continue this year, which is bad news for those of us who enjoy watching the annual elbow-fest. By contrast, it's terrific for online retailers.
Black Friday remains a reluctantly-accepted American import. It was introduced there by savvy retailers to mark the start of the Christmas shopping season. Its name comes from the fact this was traditionally the first day of the year that retailers became profitable – ie, their businesses finally moved 'into the black', which tells you something about their profit margins. What started as a celebration of retail profitability, however, was soon identified as a chance for retailers to promote their wares; once momentum had built, Black Friday became a mega-sales day.
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Ironically, shops here effectively kick off their peak season with prices at rock bottom and subsequently spend the rest of the run-up to Christmas desperately trying to push them back up again, ideally reaching full price before the Boxing Day sales see them plummet once more. If such volatile pricing wasn't bad enough for bricks-and-mortar retailers, the spectre of Amazon looms in the background.
In 1994, Jeff Bezos was working on Wall Street for a hedge fund when he started researching 'the internet', then in its infancy. He spotted its potential, resigned from his well-paid job and formed the company that would become Amazon. A few years later, a reflective Mr Bezos said: 'I knew that I might sincerely regret not having participated in this thing called the internet that I thought was going to be a revolutionising event.' Good call, Jeff.
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Amazon's impact upon the global bricks-and-mortar retail sector has been huge. It started life competing with booksellers, CD and DVD outlets and before long was dominating the market. Electrical equipment was next, before it branched into general merchandise and introduced bolt-on services such as Prime, favoured by folks who cannot wait a few days and are prepared to pay a premium for the privilege of 'free' next-day delivery, as well as accessing music and video offerings. The list of Amazon's inventiveness is impressive: it introduced one-click ordering, the Kindle and an online marketplace for third-party sellers. It played a big part in the creation of the e-sports industry, opened up the global logistics market and developed a list of one-word products such as Fire and Dash that give no idea what they are.
Amazon is not only inventive, it's clearly prepared to take risks – as a company that generates $170-odd billion in sales can. But would you invest in Jeff Bezos's baby? Amazon's unconventional nature means it is notoriously difficult to value, according to traditional methods, yet its share price has risen 100-fold in the space of 15 years. What makes that phenomenal growth even more amazing is the absence of post-tax profits, yet who is to say it won't do something similar between now and 2032?
Investing in US-based shares can become a complicated, form-filling, dividend-withholding drag, but there are several UK funds that invest heavily in Amazon on their shareholders' behalf.
Scottish Mortgage Investment Trust is among the largest and best-known mutual funds investing in the American behemoth; I fancy its managers and investors are rubbing their hands with glee at the prospect of next week's Black Friday which, while resembling a rugby scrum in the shops, promises to be another good day for Mr Bezos.
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• Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.