Black Friday is a litmus test on the outlook for the ad market in 2025

The industry will be hoping for Q4 retail sales growth this year to provide a confidence shot in the arm to unlock ad investment in 2025

Black Friday may be primarily for consumers a retail event, but for the advertising and media market it’s a good indication of the appetite of buyers (and the companies that are coveting them) to spend money on non essentials.

When retail growth is good, ad spend is good. It’s a pretty simple relationship. When retail sales show signs of difficulty, there is a reasonably fast flow on to advertising spend.

A lethargic Q4 in 2022 was the precursor to a horrible Q1 2023 for advertising that flowed on throughout the year. A bleak Q4 retail in 2023 has been followed by another year of advertising declines.

I am referring to Q4 instead of the Black Friday period (last Friday in November) as Black Friday is more of a reshaping of Christmas buying habits rather than an additional occasion.

The below shows year on year non food retail sales growth between 2017-2023. You can see from 2017-2019 the growth by month was relatively consistent.

This changed in 2020 and 2021 when the year on year growth for November was significantly larger than the months surrounding it. For 2022 growth in November reduced and for 2023 it was the same story.

We can see that Black Friday period really reshaped the Q4 retail period in 2020 with another good period in 2021.

That was when the jolt occurred. 2021-2023 was largely flat. 2021 had the largest difference between October and November when it came to non food retail sales (a gap of almost $3.7b) and this has narrowed to under $3b in the years that followed.

What is 2024 likely to look like?

Well, non food retail sales for 2024 since April had 5 months of increased growth at year on year rates around 3%. But this slowed in September to 0.5%. The mid range here is around 1.75-2% year on year growth and this would appear to be a likely position for Q4 2024 inclusive of Black Friday.

If 2% feels lethargic it’s because it is. BUT - it is better than the .3% decline Q4 in 2023 showed. If Q4 can grow 2% it would be an improvement and would demonstrate a year long period of slow but sustained non food retail growth.

The unknown factor is interest rates.

I graphed Q4 non food retail sales growth as well as the variable home loan rate for the same period each year and you can see the issue here. Interest rates going up destroyed retail growth even in a post COVID period where people still had subsidy money in the bank.

If we look pre COVID we had low interest rates and low retail growth. In 2018 variable interest rates were a full 3.4% lower and year on year non food retail sales growth was only 2.47%

Interest rates in November of 2024 remain the same level they were in November of 2024.

The relationship with inflation and non food retail sales growth is harder to deduce. Increased inflation in 2022 and 2023 coincided with sales growth slowdowns, but 8.5% inflation in 2020 COVID period didn’t dampen retail sales momentum.

Looking forward what would the advertising market be wanting for Christmas?

They’d be wanting a glimmer of hope in Q2 (+2% growth) and they’d want some interest rate relief in the first quarter and another cut in the second quarter. This would show to advertisers there is some confidence (backed up with actual behaviour) and interest rate cuts would put some more money in consumers who have a mortgage of rent bank accounts each month.

The cherry on the cake would be an acknowledgement from consumer product and non food retail marketers that their migration of advertising investment from activities that build brand and into attribution gaming search and some retail media networks isn’t actually delivering the results they have been thinking they have.

What would be the coal in the stocking Christmas gift?

Another ~1% or no growth Q4 would be another bearish sign that budgets could continue to tighten up in 2025. If interest rates don’t reduce in H1 this would only reinforce that and it would be hard to see any positive movement in 2025. Short term thinking would continue to win and marketers would feel even more need to demonstrate the perception of results up the line, with more money going to the platforms.

The Signal prediction

I am feeling optimistic about the next year. Q4 non food retail will be up around 1.75-2%, providing some warmth to the ad market to kick of 2025. The impact of even marginal interest rate cuts in the first half will be significant, providing good momentum in Q2 and a great platform for a bullish H2 with robust growth.