Black Friday Bloodbath: ROAS Down 12%, Gross Margins Down 9% | Post-Mortem Data

Episode Transcript

00:00:00 - 00:00:22
Mike: Welcome to another episode of Growing E-commerce. I am one of your hosts, Mike Ryan, and I’m here with Chris—the other one. So, Chris, you got a haircut? Yeah, I knew it. And you? Well, that’s good. Somebody got a new haircut. It’s quite… if you’ve trimmed a lot, it’s very Roman.

00:00:22 - 00:00:42
Chris: Look at it. Right? Man, you know what? I’m 41 years old, and I think this is an age where you have to do everything in your power to look as sharp as possible. My hairdresser convinced me that short hair just makes you look younger. For me, then, it was a no-brainer.

00:00:42 - 00:01:00
Mike: Make it as short as possible. All right, it’s time. Chris, I saw you and at first I had this sinking feeling in my stomach because I got a glimpse of you out of the corner of my eye, and I saw that your hair was dramatically shorter. Are you familiar with the Edgar cut?

00:01:00 - 00:01:17
Chris: What is it?
Mike: Oh, man. I’m going to have to send you an image. The Edgar cut. I just found out that this is what it’s called, and I’m really proud of myself for even knowing. But I was like, what is this hideous haircut that the young people have?
Chris: Is it a comb-over or similar to a buzz cut?

00:01:17 - 00:01:33
Mike: It’s hard to describe. It looks like someone made a mistake. The first time I saw one of these, I was like, what is wrong with that guy’s hair? He definitely cut his own hair. And then I realized that—honestly speaking, give me honest feedback—do you feel like my hairdresser made a mistake?

00:01:33 - 00:01:52
Chris: No, no, it looks good. But it’s funny because I was musing on the bus ride in this summer and I was like, you know what? Because I feel like a lot of things haven’t changed that much. Fashion—I feel like this stuff is actually… everyone talks about accelerated culture, but to me, some things are slowing down massively.

00:01:53 - 00:02:12
Chris: And I was like, actually… but now with these barrel-leg jeans, if that means something to you, and the Edgar cuts—these young people are really choosing, to me, avant-garde decisions. There are a lot of young people running around on the streets where I’m like… but again, I’m 41. I’m old and I just hope that I wasn’t running around totally crazy when I was young.

00:02:12 - 00:02:20
Mike: You were. You were in your shoes.

00:02:20 - 00:02:41
Chris: I was wearing cargo shorts.
Mike: Cargo shorts were the barrel jeans of our time. Cargo shorts, by any objective measure, are hideous—as hideous as barrel jeans.
Chris: By the way, the craziest shot I had was a FUBU outfit.
Mike: Yeah, FUBU jeans.

00:02:41 - 00:02:59
Chris: Yeah. And I can remember the discussions I had with my father back in the day. He was sure that it was the wrong decision. He was right, but I pushed through it for roughly a year and then I realized that there are still better ways to dress, you know?

00:02:59 - 00:03:17
Mike: FUBU. Yeah. Let me guess: you had the saggy jeans with the boxers hanging out, massively into basketball then.
Chris: I wanted to be, of course. Yeah. But what’s up for today? Second to last episode, or is it?
Mike: Well, I have one more.

00:03:17 - 00:03:44
Mike: Then we’ll wrap up the year. So this is our third to last episode for the year, and we are going to talk about Black Friday. What else?
Chris: Yeah.
Mike: Chris and I were talking about doing a Black Friday episode in the run-up, but it’s hard to be really sharp because you can only talk about guesses and expectations.

00:03:44 - 00:04:01
Mike: We thought it’d be more interesting to just look at the numbers once they land.
Chris: Guessing is over. Exactly. The numbers are here.
Mike: And we have the guy, the Lord of the Numbers, sitting in front of me.
Chris: Well, I prepared a few things. By the way, I’m glad you don’t call me avant-garde.

00:04:01 - 00:04:27
Mike: So there’s some interesting stuff in here. Let’s start zoomed out, because we’re going to zoom in to the hourly level later. How zoomed out? I mean, I prepared a 20-year view of peak Black Friday search volume. This is Google search volume in the US. We’re mostly going to talk about European data, but I think to properly understand what’s happening with the overall trajectory, you need to look at the countries where it all started.

00:04:27 - 00:04:45
Chris: Where it all started. Last year, a lot of great ideas come out of there.
Mike: Yes, some bad ones too. But Black Friday, I think in general, yes, a good idea.
Chris: Well, we’ll find out when we look at the performance, Mike.

00:04:45 - 00:05:04
Mike: It loses, as it seems, a bit of steam—a lot of steam. We don’t have a counterfactual here, but we’ll throw these charts up on the screen for viewers. Let me describe it to listeners: we’ve got a bar chart from 2005 through 2025, showing the peak search volume of each year.

00:05:04 - 00:05:35
Mike: You can see that the trajectory of Black Friday—it precedes 2005, of course—was really just gaining steam every year, basically right through when it peaked in 2018. Then, guess what? I think a lot of retailers thought it was just going to keep going up. In some ways, sales volumes do every year, but we’ll talk about that in a minute.

00:05:35 - 00:05:57
Chris: Yeah, exactly.
Mike: But when we’re looking at the search volume, it dipped a little bit in 2019. But something dramatic happened in 2020: it just fell off a cliff.
Chris: Fell off a cliff, which is really crazy.

00:05:57 - 00:06:21
Mike: What do you think? By the way, the interesting thing is, once it fell off the cliff, it never recovered. Quite the contrary can be observed: there is now a downward trend, more or less. But before we talk about the reasons for that, I would really be interested—what was the reason for this massive drop in 2020?

00:06:21 - 00:06:55
Chris: What do you think?
Mike: I think there were probably some structural things going on that we might start to see in 2019, but then in 2020 there was lockdown. There was the pandemic, store closures, and store restrictions. That, to me, explains the massive drop there. We’re talking the volume nearly fell in half. It’s crazy. A big, important half of Black Friday—the stores—just fell away. Black Friday is not just an online phenomenon.

00:06:55 - 00:07:17
Chris: We focus with tunnel vision almost on the electronic part.
Mike: Yes, of course. It originated with the doorbusters and the clichés of people getting run over at four in the morning waiting for an electronics store to open.

00:07:17 - 00:07:33
Chris: By the way, I love these videos where people wait to get in for a new PlayStation or new Xbox. I love it. It’s going to end up under the Christmas tree, you know?

00:07:33 - 00:07:52
Mike: But that’s also okay. We saw that there was also a massive leap in e-commerce penetration in 2020, but then things regressed to the mean over time. The question to me is—and we don’t have a counterfactual for what would have happened—why didn’t Black Friday return?

00:07:52 - 00:08:20
Mike: There were store closures, but why didn’t it return? If we think about those doorbusters, that is something that doesn’t really exist anymore—not in the way that it did. These were deals that were limited in quantity on Black Friday.
Chris: Exactly. Only Black Friday.
Mike: That was the only day of the whole year you’re going to get that deal, and you have to be there at that store. You have to be one of the first people. And that is just gone.

00:08:21 - 00:08:45
Mike: The deals are categorically different in nature.
Chris: Let’s face it, there’s certainly a Black Friday inflation. Maybe even a bit dark, because it’s not at that point anymore. As we talked about before, there are hardly any deals which are just there on Black Friday. So this, by design, will of course have a negative effect on the peakiness of Black Friday.

00:08:46 - 00:09:11
Chris: However, for me, this still doesn’t explain this massive drop within one year, because I can’t imagine that from one year to another, retailers began to have Black Friday deals for the whole month of December or November. This massive drop is still a big unknown to me.

00:09:11 - 00:09:35
Chris: It can be explained with the pandemic for sure, but it’s almost 50%. It’s really steep. You would have expected some kind of rebound, but it’s not there.
Mike: I think what’s interesting is I looked at some other queries, like “Black Friday opening hours” or “Black Friday store hours,” things related to offline and local search.

00:09:35 - 00:10:20
Mike: You could see that even preceding this, there was already a kind of secular decline. I think these are the structural factors. Maybe this inflection point had already occurred but was just invisible to us in 2019. And then we’re talking about this new phenomenon: Black Friday week, Black Friday month, Black Friday decade. Why not Black Friday century?
Chris: Yeah.
Mike: But this really dilutes it. And also competing sales events—Amazon has a fall Prime Day event, Singles Day. All this comes together to form this picture.

00:10:20 - 00:10:47
Chris: By the way, one of my bigger clients, eMAG—one of the bigger online retailers in Eastern Europe—they just created their own Black Friday, I think one or two weeks before the real Black Friday.
Mike: Yeah.
Chris: So, yeah, I think it plays a lot into it that Black Friday as one day loses its peakish character. But I would have assumed just not that steep of a decline.

00:10:47 - 00:11:16
Chris: If you look at the year 2020 onwards, it’s more or less stable with a slight downwards trend. So this certainly can be explained with these longer discount periods. The falling off a cliff is for me really quite hard to explain.
Mike: I think the counterfactual here would be that you’d see this slight downward trend starting from that 2019 level if the pandemic hadn’t happened.

00:11:16 - 00:11:40
Chris: But the pandemic did happen. We all regret it… it wasn’t the best time I had in my life.
Mike: Well, and I was personally responsible. I’m sorry. I was in Wuhan—no. I should have told you I was patient zero. Now we know. Someone’s shaking their head and giving me a stern frown right now. It was a crazy time for sure.

00:11:40 - 00:12:01
Chris: Yes. Mike?
Mike: Yeah, let’s zoom in. I prepared some data here that looks at the volumes in terms of impressions, clicks, and orders, also revenue and spend—comparing exactly year over year.

00:12:02 - 00:12:26
Mike: To help—because you can get a wrong impression when you look at those alone—for each of those I’ve also added a rate or a ratio to help give a picture about the efficiency of what was going on.
Chris: I’m proud of this one. I love it. It’s a powerful chart. A lot of things to discuss, for sure.

00:12:26 - 00:12:51
Mike: If we walk through the funnel here—the impressions, the clicks, and the orders—we see that impressions were up 13% year over year. Clicks were up 6% year over year. And then orders, looking pretty respectable, up 23% year over year.
Chris: That’s a lot. It was a great Black Friday.

00:12:51 - 00:13:13
Mike: At what cost? Because revenue… here’s the first sign of trouble. Conversions were up 23%, but revenue was only up 15%.
Chris: Driven by smaller baskets.
Mike: Exactly. And that’s because average order value was down 6-7% year over year. And the biggest number is—by the way, good for Google, good for earnings today.

00:13:13 - 00:13:36
Chris: If you are an Alphabet stakeholder… I’m not, are you?
Mike: I’m not. I was thinking about it looking at these numbers.
Chris: Change your mind. Mike, let’s call it what it is. This is a perfect picture for Google because the spend grew by 31.4%.

00:13:36 - 00:14:00
Chris: Mainly driven by higher CPCs. We had this awesome live tracker of what was going on during Black Friday, and I was looking at the network and what is happening with the CPCs.
Mike: Yeah, we’ve been plugging the Market Observer on some recent episodes, and just one more plug because we every once in a while just get a crazy idea and we just do it. We put in a live hourly tracker.

00:14:00 - 00:14:26
Mike: It was an awesome live tracker. But, ladies and gents, the picture is a mixed bag. Yes, there was more revenue, but at smaller baskets, which is in general not a good thing because it probably cost you absolute basket margin. But the major thing is that the spend drove the growth.

00:14:26 - 00:14:48
Chris: And to a relation which is just unhealthier than the year before.
Mike: Well, on here we have the CPM, which is not so relevant for Shopping and PMax ads typically, but for what it’s worth, it was up 16%. So that visibility cost more—30% more spend for roughly 15% more revenue.

00:14:48 - 00:15:05
Mike: But the figure that’s not on here is the return on ad spend, and that was down 12% year over year.
Chris: A logical consequence.
Mike: And by the way, the good old conversion rate bump of 6.1% year over year—as crazy as it sounds—saved the day.

00:15:05 - 00:15:27
Mike: Yes, that was the saving grace because basically every efficiency metric is in the red except for conversion rate. So the demand was there. The problem was, as I see it, I really think there was good consumer demand, but the supply of advertisers was just higher.

00:15:27 - 00:15:57
Chris: Yes. And the CPC increased throughout the year. We talked about that being the biggest nagging problem for anyone active now on Google in particular. The CPC is ruining the party because, like you said, the demand was there and people were buying—all good signs—but at very high costs.
Mike: Yes. This was just the price of competition.

00:15:57 - 00:16:22
Mike: And by the way, these volumes sound about right. Overall volumes for Black Friday were not up this high, but e-commerce was up. I was reading 12% from Salesforce or Adobe, so seeing revenue at about 15% seems right to me in this channel. That’s what we saw in these shopping channels.

00:16:22 - 00:16:41
Mike: But to look behind the scenes a bit, I did something new this year: I looked at the average gross profit margin from October 1st, to get a feeling of the baseline, through November 30th.

00:16:41 - 00:17:05
Mike: You can see that the average was right about 35%.
Chris: That’s a benchmark.
Mike: Yeah, above 30% is probably considered healthy. And that’s where those numbers were with a little fluctuation. Then you start to see the first signs of trouble. The first week of November was maybe still within a standard deviation, but the second half of November, it just starts falling.

00:17:05 - 00:17:35
Mike: Particularly that final week of November. So it’s down like nine percentage points to 27% from where it had been.
Chris: No big surprise. It just cost way more money to get revenue as an online retailer. And this is coming on top of the massive discounting.

00:17:35 - 00:18:01
Chris: If you want to join the Black Friday party, it’s not possible without the discount. And the discount periods are getting longer and longer, making Black Friday less of an “especially.” Black Friday is still the biggest thing in a year, but it has been bigger before. This discounting combined with the pressure within the Google ecosystem… for me, it’s no surprise there.

00:18:01 - 00:18:22
Chris: The bigger question, Mike, is an obvious one. Let’s assume you are the owner of an online shop, your wallet is not miles deep, and you have a limited budget for the year. What are you doing with Black Friday and Black Week? Because you know by design that the orders and revenue you get during these couple of days will probably, from a gross margin perspective, not be as attractive.

00:18:22 - 00:18:46
Chris: What would you do? Because I think that’s a question a lot of online retailers might have: do you want to join the party, yes or no?
Mike: It’s not a dumb question and I think it’s non-trivial to answer. It’s always been a devil’s bargain. Economists have been criticizing Black Friday for all 20 years of that chart. Is this actually generating new demand, or are these advertisers acquiring new customers, or is it just concentrating the existing demand into a promotional bloodbath where margins are lost?

00:18:47 - 00:19:15
Mike: Back in the day when the peak was much more acute and it was an event with boundaries, if you didn’t participate, you missed out. Now that it’s become so borderless, it’s hard. What does it mean to not participate when there are people running these promos all month?

00:19:15 - 00:19:33
Mike: Adobe or Salesforce was running dashboards with numbers where the average discount was like 26%. That peaked at Black Friday, but people have been running high discounts all month and it just intensified. So what does it mean to not participate now? Does it stop? Well, I gotta take the month of November or December off because let’s face it…

00:19:33 - 00:19:57
Chris: The statement of having a borderless Black Friday—Black Friday, Black Week, Black Month… what is it, Black Quarter? This is a fair question, right? Okay, just don’t join Black Friday, but is the situation post-Black Friday that much better?

00:19:57 - 00:20:20
Chris: If you look at the last five years and you see that the demand for your assortment is not falling off a cliff post-Black Friday, and I would still assume that the discounting pressure is at least a little bit less then, it could be interesting to have some strategies not to put all your eggs in one basket.

00:20:20 - 00:20:42
Chris: A lot of online retailers focus very much on Black Friday, which is by design a bloodbath. It’s a very tricky question. The gross margin, however… just to be clear, we looked at more than 150 accounts. This is an aggregated average. You just buy revenue at a significantly lower gross margin.

00:20:42 - 00:21:25
Mike: Oh, yeah. Let’s jump into the hourly level. I just want to look at this hourly chart with you here because I think it tells a really interesting picture. I have put hourly revenue share, hourly conversion rate, and hourly cost per order next to each other and then heatmap-ed them. All three have a different pattern—different hourly seasonality. Did you shop on Black Friday, Chris?

00:21:25 - 00:21:47
Chris: I was the one person shopping at 3 a.m. No, honestly speaking, I didn’t. But looking at this intraday analysis, I understand the patterns because it probably would map to my shopping data.
Mike: Walk us through, Chris.

00:21:47 - 00:22:06
Chris: On the chart here, split into an hourly view, you can see the development of the revenue share. No surprise there: there is a peak around prototypical shopping hours, let’s say 6 p.m. to 9 or 10 p.m. This is something I can relate to because it’s post-work, the kids are in bed, and you do your shopping.

00:22:06 - 00:22:30
Mike: We should mention, by the way, in the US people have Thanksgiving as a holiday and take Black Friday off, but in Europe that’s not the case. People are working.
Chris: Absolutely. So it makes a lot of sense that there’s a peak in revenue share around the 7 to 10 p.m. mark. What’s interesting is that the conversion rates are a little bit different. Mike, what’s your take?

00:22:30 - 00:22:50
Mike: They peak really early in the morning—it’s kind of bimodal. They peak around 5 a.m. with a very high conversion rate of 10.6%. That might be a bit skewed because it’s not a huge data volume, but I’m really split here. Should you go in there and advertise to capture that conversion rate?

00:22:50 - 00:23:15
Mike: I bet these are people who have been shopping all week long. They know what they want to buy, they’ve done the research, and they’re the early birds. They’re doing that because they want to make sure the deal doesn’t run out or stock doesn’t run out before work. I actually think that is very low incrementality in the morning.

00:23:15 - 00:23:37
Chris: It’s demand, and I want the demand to be captured. They’ve decided what product they want to buy, but maybe they don’t care who it’s from. That’s why they jump onto Google. So looking at these numbers, it makes sense to be active very early in the morning from a demand capturing perspective.

00:23:37 - 00:23:54
Mike: Then there’s a second peak, and it’s even more acute and later than the volume peak. This conversion rate peak is really at 9 p.m., 10 p.m., 11 p.m. and that’s the “oh shit” people. The urgency is back. Black Friday is ending, I’ve got to buy.
Chris: That has happened to me many times.

00:23:54 - 00:24:14
Mike: They’ve been waiting all day considering… this is typically me. Chris, am I an “everything’s prepared well in advance” person or a “last minute crunch” person?
Chris: You can say it.
Mike: I’m a last minute crunch person. It’s fine. So yeah, that’s me right there. We see the conversion rate has these early morning and late evening peaks.

00:24:14 - 00:24:39
Mike: And then cost per order behaves differently. It has a midday peak. It’s kind of a bell curve across the day that really ramps up and down at noon.
Chris: That’s certainly a tricky one. I wouldn’t have expected that depth to creep… I thought there’s more density in the evening that drives the cost per order.

00:24:39 - 00:25:06
Mike: I have a feeling this is driven by competition piling on and lower conversion rates. The volume is sizable through midday, the conversion rates are stuck in the middle, and everyone’s competing for that volume. The greatest opportunity I see is that cost per order is cooling down in the late hours of the day.

00:25:06 - 00:25:27
Mike: The revenue share is still sizable and the conversion rate is good. I don’t know if people are running out of budget at that point, but it’s really worth pushing hard.
Chris: Balance the budget and be there when it counts. Based on that number, it’s certainly important that you have a big enough war chest for the late hours.

00:25:27 - 00:25:48
Mike: Because that’s where the volume is still there and high conversion rates. This could be a failure of Google’s bidding models as well. Google knows conversion rate increases on Black Friday, but do they have enough data to build an intraday model for it? To me, that’s the window of opportunity.

00:25:48 - 00:26:08
Chris: Certainly very interesting.
Mike: Last chart. Hold on. We said I’m a last minute crunch person. I want to tell you an anecdote—sample size of one. This whole Black Friday thing has become so blown out with the lack of a peak. I had a very busy weekend and I knew the deals weren’t going anywhere. I did one big purchase: a robotic lawnmower.

00:26:08 - 00:26:24
Chris: Okay.
Mike: I did this in the late evening hours of Cyber Monday because that’s when the deals were actually expiring. I knew the deal wasn’t going anywhere, then finally the urgency was high enough and I converted.
Chris: This makes sense looking at the chart. You knew what you were looking for, jumped on Google—high conversion rate, efficient cost per order.

00:26:24 - 00:26:45
Chris: It’s the window of opportunity to have an open budget for these late-hour shopping times and get the late birds on Cyber Monday as well. There are a lot of Mikes out there.
Mike: Last chart for today. A bit of a zoom out now. I want to show what happened with competition levels. I chose two of our favorites: Amazon and Temu.

00:26:45 - 00:27:04
Mike: Again, this is European data. Amazon is about as dominant as they’ve ever been. The percentage of advertisers facing competition from them is like 85%. I do a little filtering in here, but the number would be even higher if I were less strict.
Chris: This is not a big surprise. Amazon has been continuous throughout November and December.

00:27:04 - 00:27:27
Mike: It’s pretty similar to what we saw last year. Now, Temu—you can see they have been easing out and lowering their spend significantly all November long. They were very comparable with Amazon in October, but they reduced down to a level where only about 1 in 4 advertisers were seeing competition from them on Black Friday itself. That’s a very significant drop.

00:27:27 - 00:27:46
Chris: Extremely significant. Reason for that, Mike?
Mike: I think they figured out that Black Friday doesn’t work that well for them. They have problems as the holiday season goes on with shipping deadlines because a lot of their stuff takes longer to arrive. And maybe the CEO said, “Guys, our gross margin is already very high—we can’t discount any further.”

00:27:46 - 00:28:10
Mike: One really notable thing happened. In mid-November, Temu had an acute drop. At that point, AliExpress jumped up massively. Temu had planned to wind down, then AliExpress turned up their advertising pressure for Singles Day.

00:28:10 - 00:28:32
Mike: AliExpress pushed hard for a couple of days around Singles Day. If you’re not familiar with Singles Day…
Chris: I’m hardly.
Mike: It’s a Chinese holiday. JD or Alibaba started it as kind of an anti-Valentine’s Day, but somehow it became a major sales event. Now they’re trying to make it happen in other markets as well.

00:28:32 - 00:28:50
Chris: Since Black Friday loses its steam, what’s your prediction?
Mike: I don’t know where this is headed. One day there will be a “Black Year.” If Black Friday gets the stink of death around it… people right now are unsure if the discount is genuine. The urgency is gone if the discount lasts a month. As a consumer, it feels really weird.

00:28:50 - 00:29:11
Chris: There was this great meme on LinkedIn showing that it’s the same price on Friday—they just came from a different starting point which never existed. I think how genuine the discount is is a very real question.
Mike: Yeah, and price transparency is going to be a major theme in 2026. Consumers demand it.

00:29:11 - 00:29:42
Mike: In Europe, there’s Idealo. The big value proposition of generative commerce is tracking and acting on prices. Amazon’s doing it, Google’s doing it. It’s a great proposition as a consumer and terrifying as a retailer.
Chris: Mike, man, this was a little longer than planned.
Mike: There’s a lot of data! It’s worth it.

00:29:42 - 00:29:59
Chris: What’s the summary?
Mike: The summary is that we hit the numbers but at a terrible price. Advertisers were motivated to spend, but the competition was even more there. Everyone talks about the revenue figures, but it was out of steam and it cost a lot.
Chris: Every year growth comes at a different cost. I hope for a turnaround with the CPC development because I’m worried for the middle-of-the-pack online retailers. High CPC increases the pressure so much.

00:29:59 - 00:30:24
Mike: Same. Improved efficiency. I used to say it’s time to stop worrying about CPC and focus on value per click, but CPC is a topic right now. I talked to high Google reps and said this is potentially threatening the long-term business model of Google if they lose that middle-of-the-pack retailer.
Chris: Looking forward to an episode next year.
Mike: Let’s aim for the stars, Chris. Kick us out.

00:30:24 - 00:30:49
Mike: All right, this has been another episode of Growing E-commerce, brought to you by Smarter E-commerce, also known as smec. To learn more, visit smarter-ecommerce.com where we have all kinds of great free tools and resources like Market Observer.
Chris: If you enjoyed this podcast, please give us a shout out. Share it with a friend and give feedback regarding my haircut!
Mike: It’s not the Edgar cut. It’s fine. All right, thank you, ladies and gentlemen.