Black Friday got its name because the high volume of sales can bring a company's books out of "the red" and into "the black" for the year, but if it sounds a little ominous, it's not just your imagination. For consumers, shopping on this day can be a black hole for their finances. Stores advertise ultra-low prices, creating the hype that sends droves of typically rational people to the malls in the wee morning hours, and leaves them fighting each other for the last big-screen TV. And while stores do have plenty of blow-out deals, the whole day is pretty much rigged in their favor, not yours.
IN PICTURES: 5 Money-Saving Shopping Tips
- It's a Rush
If you walk into a store during a big sale and see customers buying up everything in sight, it's easy to get sucked in to buying something - even if you didn't plan to or don't need it. And it isn't just you; this tendency to become one of the crowd is called herd behavior, and it is a well-documented psychological phenomenon in crowd situations (such as a one-day sale) and even the stock market.
If you decide to shop on Black Friday, you'd better come armed with a lot of discipline because it will be a whole lot harder to think clearly about what you want to buy in the midst of an adrenaline rush. (To learn more about "mob mentality", read Behavioral Finance: Herd Behavior.)
- For a Limited Time Only
"Quantities are limited." "No rain checks". Check out any Black Friday sales category and you're likely to find words to this effect. The fact is, if you're not near the front of the very long lines that form at some big box stores, many of the best deals will already be gone when you arrive. Retailers are counting on getting you in the door, and then leaving it to the adrenaline (see point No.1) to do the rest. This is called a loss-leader strategy, and in some cases the retailer may not even be making money on these "door buster" items - so you can bet they're making it up wherever they can in the rest of the store. (Find out more about company profit margins in The Bottom Line On Margins.)
- Markdown Madness
On Black Friday, it seems like everything is on sale, and this can have a real emotional pull for some people. If you're a person who can't resist a deal, Black Friday is not a good place for you to be - unless you also like a full credit card and an empty back account. Whether the items you bought were a "good deal" or not is beside the point if you can't afford to pay for them. (For more tips on how to avoid unnecessary spending, see Attention Discount Shoppers: Don't Buy Just Because It's On Sale.)
IN PICTURES: 6 Generic Products That Are Just As Good
- The Pressure Trap
It's a little hard to comparison shop when you have a mob behind you clamoring for the same item. After all, on a usual shopping day you could always browse through a few stores and come back to make your purchase. Not on Black Friday, and retailers capitalize on this by upping the pressure - these sales are "one-day only" and offer "the best price of the season". But do you really want to take their word for it? Many online retailers offer Black Friday discounts too, and shopping online will give you time to browse - and allow you to relax at home in your pajamas, rather than being trampled in a big-box store. (Find out more in 7 Tips For Shopping Safely Online This Holiday Season.)
- Last-Ditch Efforts
According to Consumer Reports, 44% of Americans are expected to hit the stores on Black Friday and the holiday weekend this year. If that estimate proves correct, that represents a lower overall percentage compared to last year. What this means is that many stores may be forced to cut their prices even more in the days leading up to Christmas in order to boost their sales.
The Bottom Line
Some people love the thrill of Black Friday shopping and approach it as a sport. If you're in it for the hunt, it may be wise to leave your credit cards at home and shop with cash, so that you won't be tempted to spend over your budget. If you're heading out to Black Friday in the hope of a deal, it may be better to hold off, at least for a few days. Many of the sales being offered will stick around, but even if you miss some of the ultra-low prices, the lack of pressure to spend may help you avoid overspending.
Find out what happened in financial news this week. Read Water Cooler Finance: GM's Dramatic Return.