Kames Capital UK Equity Income fund comments on Black Friday

Iain Wells, co-manager of the Kames Capital UK Equity Income fund said,
“Black Friday has been a feature of UK retailing for the last few years. Drawn by the promise of large discounts on selected products, shoppers are persuaded to go online or in store and open their wallets. A big success in the US, it has a chequered history here – with fighting in the aisles of Asda and crashing websites being the main highlights in recent years.
“It’s reception among retailers is also mixed. Some early enthusiasts, like Asda, no longer take part, while others like Next stick to their rigid sales periods.”
“Retailers need to be careful about the event as a discount mentality is the last thing they want to create in the current environment. Indeed some, like Debenhams and Marks & Spencer, are deliberately reducing the amount of discounting they do over the year. While this may lead to lower sales, it means profits are higher, as discounts can destroy profits rapidly. However, canny retailers can get around this by planning ahead and involving suppliers at an early stage, allowing them to be promotional while generating profits for them, and higher volumes for their suppliers.
“An added consideration for shoppers this year may be inflation. Sterling’s sharp fall means import prices will rise, and since this covers much of what we buy, it means prices may be higher. Most retailers will have hedged their overseas purchases for this year, but rising input prices could well be an issue in 2017.
“Ultimately, it is likely the majority of consumers don’t know what the “right” price is for most of what they buy, but one thing they will see next year if inflation continues to rise is pressure on their income. Something may well have to give in that scenario, leaving retailers reluctant to raise prices if they can help it.”