Black Friday to Valentine’s Day: Flash sales become vital for online retailers

Retailers, especially direct-to-consumer (D2C) companies, are increasingly banking on flash sales – when substantial discounts or promotions are offered for a very short period – to drive revenue and increase purchase frequencies throughout the year, hoping to remain visible in the eyes of potential consumers at all times. Every opportunity, even a traditional US concept like the Black Friday sale, is leveraged to offer discounts.

Black Friday marks the beginning of the Christmas season and has emerged as the busiest shopping day in the US. It is widely believed that the name was adopted decades ago to signify that businesses operate in the red until this day, the Friday after Thanksgiving, when massive sales allow sellers to make a profit or turn ‘black.’

“It’s very amusing how we draw inspiration from the West. I’ve been watching the consumer space for a while now and I am surprised to see the kind of impact flash sales is having on both consumers and brands lately. Black Friday was not so big last year,” said Chirag Taneja, co-founder and chief executive of GoKwik, an e-commerce enablement platform that works with over 10,000 consumer companies such as Lenskart and Mamaearth.

Most flash sales are a bonanza for sellers. According to GoKwik’s estimates, the gross merchandise value (GMV) of retailers surged as much as 24% on Black Friday weekend this year, driven by consumers in metro cities. For many companies, a fifth of their November sales came from this weekend alone, which is impressive especially when demand growth for discretionary products has slowed to low single digits over the past few quarters.

GMV is the total value of goods sold on a platform, excluding discounts and other expenses.

And so, flash sales are no longer simply a year-end phenomenon. A week-long Valentine’s Day sale as well as a monsoon sale in June are now commonplace. Ahead of Valentine’s Day this year, gifting platform FNPdelivered 350 roses every minute, while Zomato-owned quick commerce company Blinkit dispatched 406 chocolates per minute.

“To my surprise, most of the brands went on a Black Friday sale this year, even those that rarely offer discounts throughout the year. I expect standout occasions like this to come close to major sales like Flipkart’s Big Billion Days,” Taneja told Mint.

Finding value

One reason companies opt for frequent flash sales is to acquire new customers, according to Dhriti Drolia, founder of activewear brand Silvertraq. The Mumbai-based company receives 50-60% of its new customers from three or four big sale events such as Valentine’s Day and Black Friday.

“Many consumers who want to try a new product are willing to take the risk when the prices are lower. Even though we have a flexible return policy, there is a barrier in the minds of some consumers because they haven’t seen the product,” Drolia told Mint.

There is also the fear of missing out when rivals offer discounts.

“You will definitely see a dip in revenue if you decide to not run offers while major sale periods from marketplaces and other brands are on. Brands want to ride the wave and make the most of the opportunity,” Drolia added.

However, there are downsides such as the risk of being perceived as a “discounted brand,” potentially diluting brand value, according to Jatan Bawa, co-founder of Perfora, which sells oral and dental care products. Gross margins may take a hit even though discounts boost sales.

“Discounts shouldn’t become a brand’s business-as-usual strategy. Not only will the value of the product be lost, the brand will also end up deriving much less revenue as a proportion of ad spends,” Bawa noted.

Way forward

Since frequent discounting isn’t sustainable, some sellers focus on building a strong product that will attract users for its functionality and not so much the price.

Perfora plans to launch fewer sales events, a shift from its usual quarterly practice, to maintain brand value and cater to customers who prioritise quality over price. It will also gradually lower the rate of discounts in each sale from 40% to 25%, its co-founder said.

However, main sale events like Black Friday and Valentine’s Day will continue to be popular.

“Brands have to figure out how to strike the right balance between average order value and customer acquisition costs. That’s the way forward,” Bawa said.

Bundled deals like ‘buy 2 get 1 free’, instead of flat discounts, may help brands maintain average order value and lose less money during sales, GoKwik’s Taneja said.