Black Friday deals are arriving earlier this year as U.S. consumers are still dealing with higher prices from a year ago. As a result, retailers know that shoppers have become price-sensitive and are looking for steep promotions and discounts. Therefore, retailers have ramped up the amount of merchandise on sale, hoping that more shoppers will open their wallets ahead of Black Friday.
The discount penetration (how much of the assortment is on sale) rose to 42% in November. LSEG discovered this in a collaboration with Centric Market Intelligence, formerly StyleSage, which analyzes retailers, brands, online trends and products across the globe. For November, the discount penetration is 42%, considerably above the 2023 average of 33%, as retailers face a more price-cautious consumer.
Exhibit 1: U.S. Online Retail: Discount Penetration–2019 – Nov 2023
Source: Centric Market Intelligence formerly StyleSage Co.
However, what has not changed as much is the average discount offered on this merchandise. The average percent discount in November has remained steady at 37.5%, in line with the 2023 average of 37.5%. This means that retailers are ramping up the amount of merchandise on sale. However, the average discount is slightly lower than last year. Suggesting that retailers are luring in shoppers with more merchandise on sale, but are being more cautious with margins.
Exhibit 2: U.S. Online Retail: Average Discount –2019 – Nov 2023
Source: Centric Market Intelligence
LSEG holiday sales forecast
Looking forward to Q4, the LSEG U.S. Retail and Restaurant index is only expected to show a 1.7% revenue growth over last year’s levels. However, the estimated earnings growth rate is expected to grow 24.9%, due to lower cost pressures from a year ago.
Our metrics show that seven of 10 consumer-related industries have turned negative (Exhibit 3). Of the 205 retailers tracked by LSEG, the Broadline sector is headed for the highest earnings growth rate driven by Amazon’s strength. Still, the Hotels, Restaurant & Leisure sector has consistently done well and is headed for the second highest earnings growth rate in the fourth quarter, recording a 80.3% surge over last year’s level.
In fact, it has been the strongest-performing sector this year. These firms have been benefiting from the fact that consumers feel more comfortable traveling, staying at hotels and eating out after two years of staying at home due to the pandemic.
Exhibit 3: The LSEG Retail Earnings Growth Rate – Q4 2023
Source: LSEG I/B/E/S
U.S. mall stores
Consumers’ shopping behavior has changed since the pandemic, as shoppers gravitate towards services over discretionary items. As a result, U.S. mall stores have been underperforming the restaurants and hotels sector. Accordingly, retailers are ramping up the promotions to attract shoppers, just in time for Black Friday week. About 45% of the online merchandise for U.S. mall stores is on sale this week. This discount penetration is slightly higher than it was during Black Friday last year (44%).
Exhibit 4: U.S. Mall Stores Discount Penetration: 2016 – 2023
Source: Centric Market Intelligence
The current U.S. mall average percent discount (14%) is slightly lower from one year ago (16%). This means that this category is slightly less promotional than last year.
Exhibit 5: U.S. Mall Stores Average Discount: 2016 – 2023
Source: Centric Market Intelligence
Mid-tier department store sector
Department stores consistently remain the most promotional-driven sector throughout the years. This holiday season is no exception and the average discount is above the high pre-pandemic levels.
Last week, Macy’s reported Q3 earnings and its CEO said, “I’m 36 years into this, and I haven’t known a fourth quarter that isn’t competitive and isn’t promotional. That being said, our guidance and margin gives us the opportunity to offer compelling value to have a strong Black Friday.” (Source: Macy’s Q3 earnings call Nov ‘23)
For this Black Friday, the discount penetration is a whopping 69% this year from 77% in 2022. This means that more than half of the inventories are on sale. That’s extremely high and the question is how long this sector can maintain these high discount levels, which come at the expense of margins.
Exhibit 6: Department Store Sector Discount Penetration : 2016 – 2023
Source: Centric Market Intelligence
The average discount is slightly higher from pre-pandemic years – 29.5% in 2023, compared to 28% in 2019.
Exhibit 7: Department Store Sector Average Discount: 2016 – 2023
Source: Centric Market Intelligence
Specialty sector
The specialty sector is the second-highest promotional sector. Last year, the discount penetration rose to 54% on Black Friday week with an average discount of 22%. Since then, both averages have remained steady.
Exhibit 8: Specialty Sector Discount Penetration: 2016 – 2023
Source: Centric Market Intelligence
In this Black Friday, 55% of the merchandise in this sector is on sale, with an average discount of 22%, which is still higher than pre-pandemic levels.
Exhibit 9: Specialty Sector Average Discount: 2016 – 2023
Source: Centric Market Intelligence
At the category level, average discounts have gone up the most across a variety of apparel, including shorts, dresses, jumpsuits & rompers, followed by shirts and tops (Exhibit 10).
Exhibit 10: YOY% Change in Average Discount within the Specialty Category
Source: Centric Market Intelligence
Premium sector
The amount of discounting among luxury retailers spiked during the 2020 pandemic — the highest levels seen since 2016. This year, however, it’s the opposite story as both the average discount and the discount penetration dropped to their lowest Black Friday levels. Currently, both metrics continue to decline going into the holiday season.
Exhibit 11: Premium Sector Discount Penetration: 2016 – 2023
Source: Centric Market Intelligence
The discount penetration level is presently lower (17%) this year than last year’s (23%). The average discount is 7%, below last year’s 10%.
Exhibit 12: Premium Sector Average Discount: 2016 – 2023
Source: Centric Market Intelligence
Beauty sector
This sector also usually discounts fewer items, at lower average discounts than the apparel and accessories industry. Last year, the discount penetration rose to 19% on Black Friday week. In this Black Friday week, only 5% of the merchandise in this sector is on sale, with an average discount of 2%; this is still in line with the long-term average discount.
Exhibit 13: Beauty Sector Discount Penetration: 2016 – 2023
Source: Centric Market Intelligence
Holiday season summary
In summary, retailers have ramped up their discounts to the highest levels seen in 2023. The department stores will offer the most discounts, followed by the specialty sector. Within the latter category, apparel continues to be most discounted. On the flip side, the premium and beauty sectors are being more selective with their discount offerings.
Still, the Hotel, Restaurant and Leisure category is on track to see strong earnings this holiday season. This category still outperforms retail, suggesting that the consumer still prefers experiences over mall shopping – even during the holidays.
