Black Friday is upon us again. Each year, the shopping extravaganza seems to get bigger and louder. Shoppers search out the biggest bargains. Retailers report huge demand. It seems like there must be some well performing Black Friday shares.
But what Black Friday winners might make good shares?
Why busy shops aren’t always good for retailers
Instore and online, Black Friday is increasingly one of the busiest days of the calendar for retailers. With heavy advertising and deep promotions, the tills should be ringing frequently. It is also an opportunity to acquire new customers.
But actually that isn’t necessarily good for retailers. After all, discounts cut into their profit margins. Some of the sales are clearly at a loss. On top of that, after customers load up on cheap buys on Black Friday, there is less need for them to shop again any time soon. So, when I look at Black Friday shares, I ask myself which retailers are managing to build long-term, profitable relationships with shoppers. I think that will be a more rewarding commercial strategy than a one-off “pile them high, sell ‘em cheap” approach.
So when it comes to Black Friday, I don’t see any extra value in shares in the big retailers like Tesco or Morrison’s. Instead, I look for companies who benefit from a shopping surge without cutting prices.
Black Friday shares I would consider buying
One such set of Black Friday winners is the logistics companies who handle the shipping of products bought online. They aren’t discounting to get shoppers to buy their products. Instead, they are making money on every item shipped as orders fly out the door. Such a company is Clipper Logistics. It has growing operations in Germany but its main market is the UK. Its deep, multi-year relationships with clients such as Zara and ASOS means that Black Friday likely produces a sales boon. Last year, e-commerce fulfilment grew at 18%.
Another group of Black Friday winners are media companies who derive revenue from the flurry of additional advertising companies place around Black Friday. For example, Daily Mail has a sizeable online business. Last year, the company’s iconic Mail Online website recorded a 17% increase in revenue from digital ads. Online advertising for events such as Black Friday looks set to grow year after year, in my opinion.
Finally I would also consider as Black Friday shares retailers that can benefit from the general surge in buying without getting into deep discounting itself. I think Games Workshop fits that description well. Its customers are motivated by its unique range of products, not by cheap pricing. They often get deeply engaged with gaming products. That means the company can benefit from years or even decades of repeat custom, not just a one-off bargain buy.
Black Friday offers bargains in store – but also in the stock market. It is a good time to find out more about the sorts of companies that do well from it. Beyond the biggest retailers, there are some names I find attractive. Now I need to go shopping!
christopherruane has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Clipper Logistics, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.