It’s time to rethink Black Friday

"I'm selling meditation, so I shouldn't be stressed," said Charlie Rousset, the co-founder of sleep and relaxation gadget-maker Morphée. But even deep breathing can't help Rousset feel less on edge this Black Friday.

Paris-based Morphée has sold 200,000 units of its first device over the past few years. This year, Morphée has been looking to expand from Europe to the U.S. But in the face of global logistics and the supply-chain crisis, Rousset has been forced to scramble to even cater to the company's existing markets.

"This crisis is huge," Rousset said. The only thing left to do now is "wait, cross fingers and hope that it will be better soon," he added.

Morphée is one of many companies feeling the pressure, especially on Black Friday. Retail is undergoing momentous change, sped along by a series of compounding global crises and radical shifts in consumer behavior over the past 18 months. Many of these changes had been years in the making, but the COVID-19 pandemic accelerated the timeline of these shifts in unprecedented fashion.

Now, retailers, brands and shoppers are contending with the effects of overwhelmed ports and shipping companies; component shortages causing production slowdowns and massive price increases; and the pandemic influencing everything from manufacturing and labor to how we shop and what we buy.

Looming over the entire industry is Black Friday, long seen as the official start of the U.S. holiday shopping season, and as such, an important deadline for anyone looking to sell goods to the masses. Amid the crisis and the COVID-fueled growth of ecommerce and new shopping trends, a growing number of industry insiders are asking: Is it time to say goodbye to Black Friday for good?

Delayed containers, empty shelves

The most visible signs of the current retail crisis are the ships currently waiting to dock at North American ports, including a record-breaking 100 vessels in Long Beach. They're just the latest obstacle for any company looking to get its goods from China to U.S. store shelves.

Woot co-founder and former Amazon executive Darold Rydl is among the people who've spent the last few months eagerly awaiting delayed containers. "It was supposed to leave in August, and got delayed because the port got shut down due to coronavirus," Rydl told Protocol. "Then the typhoon hit, so they had to shut the port down for a week. Then it was the Moon Festival, so they were shut down for a week again. Then there was all the backlog to work through."

In the end, the container, filled with toys, didn't leave China until early October — two months behind schedule. And the drama wasn't going to stop once the container made it to U.S. shores. "Will it get unloaded at the port? Will it be able to get on to a truck?" Rydl asked. "Will it be able to get to our warehouse? Will we have it in time for [holiday shopping]?"

Shipping delays are just one component of a broader global supply-chain bottleneck affecting almost every product category imaginable. While there isn't just one culprit to blame, COVID-19 is undeniably the biggest instigator, affecting what can be produced and shipped, how much it costs to do so and, on the other end, what consumers most eagerly want to buy.

"Customers were at home, and the things they were buying changed," explained Jordan Speer, a retail analyst with the firm IDC. "Hotel and travel dried up. Apparel dried up. Consumers started buying things for their new home offices and their new homes: exercise equipment, furniture, games, bikes." Meanwhile, the virus closed Chinese factories, where a majority of these products are produced. As spending habits shifted and demand for certain items skyrocketed, supply couldn't keep up, and now every link in the chain is stuck playing catch-up.

"It's uncharted territory. There are ups and downs within the semiconductor industry, but this is not restricted to semiconductors. It's more of a global issue," said Gaurav Gupta, a semiconductor and chip manufacturing analyst with Gartner. "I've not seen anything like this before." Gupta and other analysts now say these supply-chain issues, and the chip shortage in particular, will persist well into next year and potentially last until 2023.

Not only are there component shortages and shipping delays, but prices for transportation — ocean freight shipping, container storage and truck delivery, for example — have also risen dramatically, according to Hong Kong-based freight marketplace Freightos. Sending a shipping container from China to the West Coast once cost around $3,800 per 40 square feet. It now costs more than $17,300, the Associated Press reported in October.

The problems don't end when containers reach U.S. shores. Ports have been overwhelmed by a deluge of containers, with logistics experts pointing to a lack of container storage space as one of the factors exacerbating the situation. The result: It takes many more weeks to get goods from docks to warehouses.

"We got word our last sea shipment arrived in the U.S. on Sept. 24. We received it Friday, Oct. 15," said Nathan Betzen, operations manager at consumer electronics startup Flirc. Under normal circumstances, the shipment would have reached the company two weeks earlier — two weeks that can make or break a company's holiday schedule, especially if goods still have to be shipped to retailers.

Flirc's contingency plans to stay stocked for the holiday season involve shifting some of its goods to air freight. That's a strategy that others are exploring as well, even if it comes with a significant price tag. "It's never a good option to do air freight," Rousset said. "But we still do it." Paying extra for air freight can mean that a company loses money on its products, but running out of stock completely might be worse, he argued.

An executive for a major consumer electronics company who wasn't authorized to talk on the record about the subject suggested that some of the bigger, well-known companies are going down the air freight route as well — if their inventory isn't already stuck on a container ship, that is. "A lot of containers were on the water ahead [of] knowing what the receiving port delays would be," the executive told Protocol.

Others simply don't have the luxury to pay for air freight, either because their products are too big and bulky or because their margins are already too slim. In some cases, both of these factors come into play simultaneously, as an executive for a major TV brand told Protocol on the condition that we wouldn't use his or his company's name.

"There is barely enough margin in the TV hardware business to be able to pay for ocean shipment — air shipment is out of the question for big- and small-margin products like TVs," the executive said.

Massive price increases, yearlong lead times for components

As companies scramble to get their hands on precious chips and other components, hardware startups are often squeezed the most.

"A lot of chips that were $10 or less are now hundreds of dollars," said Crowd Supply founder and CEO Josh Lifton, whose company caters to developers looking to turn their ideas into products for enthusiasts and early adopters. And the problem doesn't stop with price increases. "Parts that people designed around even a month ago aren't available anymore," Lifton said.

Rousset struggled with these availability issues when he tried to buy SD cards for Morphée's hardware a few months ago. Factories that used to take smaller orders were now turning him down. "Even if you pay double the price, you can't get them," he said.

The shortages and long order waitlists are affecting virtually every product, but the ones being hit the hardest are consumer electronics devices and automobiles, analysts and retailers told Protocol. Both categories of products rely on hundreds of chips to produce a single unit, be it a full car or a gaming laptop, and many of the lower-cost chips being squeezed right now are produced only by a select few suppliers in Asia.

It's not the big-name brands you might be thinking of, like the AMD chips inside Sony's PlayStation 5 or a Nvidia graphics card that powers a new PC. "When we're talking about the semiconductors in shortage, they're not the things we think of as maybe the more well-known components like processors or memory. Those are actually pretty healthy," said Ryan Reith, a consumer electronics expert with IDC.

The real shortage, Reith added, "are the smaller what we call ICs, or integrated circuits, that are critical" to the operation of the device. Many devices, including cars, rely on countless ICs to operate various electronics functions. If one part is absent, Reith explained, and that part might come from Vietnam or Taiwan, then it holds up manufacturing in China, which holds up shipping to the U.S.

"This is going to take long to recover from because if the demand is strong and the supply is not able to meet the demand, either there has to be a considerable demand softening or there has to be some support for new capacity," Gupta said. But, he added, the problem is that "80% of the chips are being fabricated in Asia," similarly noting that these are not high-end chips but the ICs made by older, traditional fabrication plants, many of which are outside China.

"The entire ecosystem where the shortage is … it's very difficult to bring that back into the EU and U.S., which are more focused on the advanced [chips] for which there is no shortage," Gupta added. "The reason is that they are low-price chips, so profitability is low. From a cost perspective, it doesn't make sense for companies to invest in increasing capacity for those."

These shortages will likely translate into higher prices for consumers and more constrained supply during Black Friday and well beyond. "As we head into the holiday season … there's a strong potential that we see products priced higher than they normally would be. But more importantly, less inventory of these products [will be] available," Reith said.

Some hardware companies have been forced to redesign their products as a way to make do with whatever components they can get their hands on. "You used to have one design to go to market with; now you have five or six," said IoT veteran Ben Corrado, who has been working with a number of consumer hardware companies.

Changing hardware design due to component availability issues isn't just a matter of replacing one chip with another. "It requires redesigning the entire firmware based on what's available," explained Andrew Ochoa, CEO of wearables company Waverly Labs, which recently had to go through this process. "We've had to find new ways of architecting the same product."

And while companies can ship the same product with different internals, they have to be careful not to change too much of what's under the hood. Swapping out key components will force them to re-certify the product with the FCC, which costs time and money. "It is a daunting process," Ochoa said — a process Waverly Labs was lucky to avoid, for now.

As companies are scrambling to get their hardware to U.S. ports and ultimately to consumers, they're also having to fast-track their 2022 planning. Multiple executives told Protocol that vendors are asking them to order components a year ahead of time, as opposed to the eight weeks of lead time that used to be commonplace for the industry.

That means that companies need to predict how much product they will sell during the 2022 holidays even before they've made it through this year's season. "How can we know?" Rousset asked. "We can't."

Time to ditch Black Friday?

As executives are forced to make those 2022 plans even before knowing whether they'll be able to keep shelves stocked this year, they can't help but wonder how much Black Friday will matter next year. Will it still be the tentpole shopping event that kicks off the holiday season, or will the current crisis contribute to its demise? Should companies continue to plan around Black Friday, or should they break with the rest of the industry and actively discount it?

It's not an entirely new question. Labor advocates have long pointed to the stress the shopping holiday imposes on workers. Unions have used Black Friday to strike for better working conditions, while environmentalists have called for Black Friday boycotts to highlight the impact consumer culture has on the planet.

Those critics received a huge boost when outdoor retailer REI announced in 2015 that it would close its stores on Black Friday, encouraging people to spend time outside instead. "It was a massive decision," said Gunjan Bhow, who joined REI's board of directors last year. "The biggest shopping day [of the year], and we are closing." Bhow acknowledged that the move helped REI build some brand goodwill with consumers for keeping its stores closed that day ever since. "But the impact of losing the sales was as material for REI as any other retailer," he said.

Bhow used to be the global chief digital officer for the Walgreens Boots Alliance, and before that held executive roles at Disney, Amazon and consumer electronics maker Plantronics. In those roles, he got to see firsthand how important Black Friday has been for retail and consumer electronics, but also how that importance has waned over the years. "Black Friday was created using scarcity," he said. "The whole doorbuster concept: You will miss out if you don't wait in line before the store opens, because [there are] only 25 TVs at this price."

With companies competing for the lowest price online, that idea of scarcity has increasingly fallen by the wayside, to the point where Bhow believes REI's decision to close its doors that day wouldn't make nearly as big of a wave nowadays. "Honestly, now, that decision is not that important," he said.

"It's kind of an increasingly irrelevant holiday, to be honest," agreed b8ta CEO Vibhu Norby, whose company sells consumer electronics and other goods both through its own stores as well as in partnership with bigger retail chains. "Black Friday has lost a ton of importance. At this point, it's just another day."

There are still lingering concerns around shopping in-store and the added convenience of ecommerce that the pandemic highlighted like never before. According to IDC, 23% of recent survey respondents said COVID-19 led them to start doing more of their shopping online, and that they expect to continue doing so long after. "We're not going to go back to pre-pandemic levels," Speer said. "I think these behaviors have become ingrained: There was enough time. It wasn't like the pandemic lasted a week."

The pandemic also accelerated certain trends, like curbside pickup and what's known as BOPIS, or buying something online and picking it up in the store. Both offerings reduce the amount of time customers spend inside a retail shop, where someone might be more enticed by a deal or buy something extra they didn't intend to.

"What the pandemic then shifted was that customers who didn't buy online went online, which forced the retailers to increase their capacity and shift their resources," said Ant Duffin, a retail expert with Gartner. "What [retailers] are now looking at is that [they] know last-mile fulfillment is really, really expensive and they don't want to do that, so what they need to do is look at alternatives."

That's not to say that all of the industry's woes are going to disappear if it ditches Black Friday, or that Black Friday itself will fade away quickly and quietly. The reality, for now, is that Black Friday has become an ingrained artifact of U.S. shopping culture. We can expect it to stick around but lose relevance as retailers effectively dilute its meaning and purpose by making it an extension of the whole holiday shopping season.

"Old habits die hard," said Speer. "Before the pandemic, for a few years now, I would say retailers have been expanding Black Friday to be more than just one day. For better or for worse, Thanksgiving itself became a shopping day, and then Cyber Monday and then deals starting earlier in the season, bumping up to the beginning of November."

Speer said this is an effort for retailers to both juice more sales out of Black Friday and also to distance themselves from the negative connotations now attached to it. "It's not healthy shopping," she added.

"Christmas is Christmas," Ochoa said. Even if consumers don't go deal-hunting the day after Thanksgiving anymore, they still want their gifts to arrive in time for the holidays, leaving everyone scrambling in order to line up products for a few very busy weeks — something that may not get easier any time soon, as component shortages may persist for years. "We don't know when this is going to end, and if it will ever end," Lifton said.

On the flip side, if products don't arrive in time for the holidays this year, consumers may walk away with the lesson that they have to start shopping earlier next year, in turn further weakening Black Friday. "I have teenage children," Bhow said. "I don't think they'll recognize Black Friday when they are older, because it [will] look completely different."