Why investors should be cautious ahead of Black Friday sales

Experts explain why Black Friday might not be a boost to the share market.

Despite being the biggest spending event of the year, Black Friday and Cyber Monday are tipped to have a negative impact on the sharemarket as a whole.

Originally a US-based event after Thanksgiving, Black Friday has grown to become an Australian tradition.

Retailers are now looking to front run Christmas and consumers are cashing in.

In fact, according to data released by the Australian Retail Association (ARA), Aussies are expected to spend $5.4 billion.

And that's in just 4 days.

ARA CEO Paul Zahra said November is now Australia's biggest shopping month of the year.

"For the past 2 years, November has beaten December as the biggest month for Australian retail sales throughout the year.

"Black Friday and Cyber Monday can be credited with this trend as people snap up some bargains and shop early for Christmas," Mr Zahra said.

Sounds positive, so why is the sharemarket going to remain stagnant?

RMIT's senior lecturer in finance, Dr Angel Zhong, points to a distraction in the market.

This means the spending is likely to have the opposite impact on markets than investors think.

"Black Friday tends to be associated with lower trading volume, just similar to how major sporting events can distract investors away from trading," she explains to Finder.

"So on that particular Friday, lower trading volume translates to lower stock market volatility."

The economist explains this could mean important information is not seen by investors.

"And if there are price-sensitive announcements made on those days, market reaction will be slow to adjust."

Short-term spike for retailers?

The excitement around Black Friday is tipped to help retailer share prices, albeit temporarily.

"In terms of investor sentiment in consumer cyclicals, a short-term spike is likely, but not to a significant extent and will be temporary," Zhong explains.

"This is because market participants are aware of this repeated event happening this year and hence have priced in the expectation, given that the market is forward looking."

Long-term, not so much

Despite the volume of sales, Zhong believes it will not have a meaningful impact on share prices.

When asked about the long-term impacts, the economist noted her doubts.

"I don't think so. This happens once a year and there are other sales going on as well," Zhong explains.

"Also consumers have a fixed amount of money to spend.

"If they spend more on Black Friday, they spend less other times. As such, Black Friday sales are unlikely to have long-term impact."

But businesses can take advantage

Even though it is not predicted to lead to a spike in share price, it can still be useful for investors.

According to HLB Mann Judd’s risk advisory partner Todd Gammel, businesses can use the sales period to their advantage.

“Black Friday is an indicator that retail businesses are well managed and getting the strategy right,” he explains to Finder.

“This is because a positive Black Friday for a retailer moves the right level of stock at reasonable margins and potentially continues to build on the strength of the customer base.

“If this positive outcome is maintained through Cyber Monday, December [and] Summer holiday sales, that provides opportunity for investors to assess the ability of management to adapt to the current customer requirements, and constantly change supply chain timelines [and] pricing.”

He also notes the opposite is true.

"Concern arise for those businesses that are unable to achieve a positive outcome," Gammel said.

Return of brick and mortar retail shares

Perhaps one shining light for investors could be brick-and-mortar retail.

In fact, lockdowns are set to aid traditional retailers.

As such, BDO's national retail leader Salim Biskri is predicting an influx of in-person shoppers.

"With the lifting of lockdown restrictions in most states, it is expected that Black Friday and Cyber Monday will generate significant spending from consumers," he told Finder.

"I think consumers will also be looking for the experience to return in mass to brick-and-mortar stores to touch and feel products, because they have not been able to do so for a long time in NSW and Victoria."