Markdowns and clearances are inevitable in retail operations, but they can also be strategic tools to optimize inventory, sales, and profitability. How do you align your markdown and clearance decisions with your merchandise strategy? Here are some tips to help you plan and execute effective markdown and clearance policies.
Before you decide to mark down or clear out any items, you need to have a clear idea of what you want to achieve. Do you want to increase traffic, generate cash flow, clear space for new arrivals, or improve customer loyalty? Your objectives will determine how much, when, and where you apply markdowns and clearances. For example, if you want to increase traffic, you might offer deeper discounts on popular items or categories, and advertise them widely. If you want to clear space, you might bundle slow-moving items or offer them at a lower price point.
Markdowns and Clearance will always be a part of retail but should never dictate how you merchandise. A store should always shout that seasonal presentation. You should get seasonal merchandise set as early as possible then you won’t have as much in markdowns. Clearance should always be pulled together to make a value statement.
Agree with this philosophy or strategy. Applied to Homelines, Hardlines, Softlines; and certain shelf stable Grocery z items. When it comes to Perishable Retailing; with critical best before, or spoilage dates. Like Produce, Meat, Deli, Bakery! The common rule of thumb is “ Your First Loss is Your Best Loss”. Price it aggressively for same day sale, and two to three day consumption. You are salvaging margin, and reducing shrink!
First markdown is the best. Clearance can be a powerful tool to drive sales. But always remember, the reason you still own it is because no one else wanted it.
To Break This Strategically Markdown can be of Different types you need to know which is best suited for achieving your objective. 1. Promotional Markdown- This type of markdown is generally used to increase traffic . Many a case retailers use an strategy of loss leader i.e put heavy discount on a category to gain sales in others. 2.Seasional Markdown-Generally when a season ends many of the assortment product turn to absolute waiting for next cycle . To increase cash flow retailers use seasonal markdowns . 3.Discounting- Mainly helps Customer loyalty against competiors 4. Clearance sell- It's done to cleare off dead stock to be able to generate cash flow .and make space for fresh stock. at time this is done well below the cost price.
Some way to get started: This involves data-driven decisions, product segmentation, and a pricing strategy that maintains brand value. Effective inventory management, clear communication, and strategic timing play crucial roles. Continual monitoring, omni-channel integration, sustainability, and profitability considerations complete the strategy. This ensures that clearance events positively contribute to merchandise goals and overall business success, optimizing revenue and brand image. In essence, markdown and clearance strategies are a synergy of data and customer focus, efficiently managing inventory while preserving the brand's reputation and profitability
Data is your best friend when it comes to making smart markdown and clearance decisions. You need to track and analyze key metrics such as sales, inventory, turnover, margin, sell-through, and customer behavior. These metrics will help you identify which items or categories are performing well or poorly, and how they respond to different levels of markdowns or clearances. You can also use data to forecast demand, optimize pricing, and segment your customers. For example, you can use data to determine the optimal markdown percentage for each item or category, based on its elasticity, seasonality, and competition.
Data is your friend when you use it wisely. 1.Theory of relativity - You should be knowing what is yours benchmark from your past data analysis to take an appropriate decision. what markdown strategy to be implemented. 2. know yours metrics- For different type of categories different metrics are viable for example Sell through is a better metrics Than no of days for High fashion items for planning inventory. So is the case with mark down too. 3.Monitoring- You need to monitor your changes in date once markdown has been initiated mainly Foot-Fall and conversion.
My business is not very seasonal, but when I take a markdown I do a whole category where I had great mark up initially and slash it in 1/2, Naldo tracking my suppliers and their markdowns at wholesale. I can ride the cost price down as they take their hits, and at the same time maintain my markup throughout. The customer is happy with a great deal, the supplier gets to unload a slow category, and I can keep a profitable sale going as well as a boost in cash flow
Potential markdowns are a consideration in the overall marketing strategy for seasonal and one-time buys. Hope for the best and plan for the worst. Dealing with clearance is unpleasant but doing so with no exit strategy is foolhardy. Untested merchandise should be monitored and compared with similar, but tested, products. Early movement can signal that you should try to reorder or to consider early markdowns. A small loss of margin early can prevent losing it all when opportunity has passed. The exit strategy should include knowledge of how each category sells after the season is over. Your customers might react to a slight price reduction with a sellout or they might show no interest in nearly free after-season items.
Markdown is very important strategy to liquidate Aging stocks of the company, before that need to work on to identify the Aging stocks with the help of sell thru report and current stock on hand, we need to make sure that at least 50% of the stocks for the particular season stocks should sold out, rest 50% we can work to liquidate thru markdown option. Need to align with visual merchandisers to merchandise the stocks of markdown and comply the rules of country for the markdown procedures. We need to Make sure that our bottom margin should not hurt with the markdown sales.
When it comes to aligning markdown and clearance decisions with merchandise strategy, there are several key considerations: 1. Merchandise Strategy: Understand the overall merchandise strategy of the company, which includes factors such as product assortment, pricing, and target customers. This strategy serves as a guiding framework for markdown and clearance decisions. 2. Sales and Inventory Data: Analyze sales and inventory data to identify slow-moving or excess stock. This data will help determine which products should be marked down or cleared out. It is important to align these decisions with the merchandise strategy to ensure that they support overall business objectives. As well Profitability and Margins.
Markdowns and clearances can affect your brand image and positioning, so you need to align them with your brand identity and values. You want to offer discounts that are attractive and relevant to your target customers, but not so frequent or deep that they erode your brand equity or loyalty. You also want to maintain a consistent and coherent message across all your channels and touchpoints, and avoid confusing or conflicting signals. For example, if you are a premium brand, you might want to limit your markdowns and clearances to select items or occasions, and communicate them in a discreet and exclusive way.
Marking down product that is still seasonal gives the consumer the message you don't have faith in your product or product quality. If you're regularly facing being overstocked, consider what your buying strategy is, who your consumer is and ultimately what the right price point should be. I feel in retail, poor quality of fast fashion along with high price points lead to ultimately bigger markdowns, higher markdown stock percentage and ultimately more waste. If similar items haven't cleared at this price in the past, consider lowering the original mark up price to show you stand behind the product you're selling.
Effect on positioning due to markdown. If you are positioning as an premium brand and for the purpose of clearing yours slow moving inventory you are going with clearance sale .will create an dent in yours brands positioning. How to avoide it Assortment planning- Have a more width of inventory then depth. Staggerd allocation- Segment your stores in clusters .have around 30% difference as of width is concerned between the clusters. Inter -Allocation- Try to inter allocate (transfer ) goods between your stores to maintain freshness. Otif- have a well aligned Otif( on time in full) strategy with yours vendors.
In some cases markdowns are initiated by a vendor to move outdated product. Product needs to moved as efficently as possible. Vendor markdowns prior to clearance helps reduce the impact of the heavier drop when product is clearanced. As many retailers own the inventory, movement to clearance drastically effect profit vs the reduction taken by vendor owned product. Retailer owned product is directly priced by the retailer and markdowns can be minimized to prevent loss but eventually forces a loss when it doesn't sell. Vendor owned merchandise will eventually be moved out as eol, but as stated effects brand equity and loyalty. Reduced market value on outdated merchandise consistently effects overhead and company profit.
Bulldongy! If your product is one of quality and value your worth will be there no matter the market/ environment. Give the people what they want and they will pay for quality which is good value. Case and point! Mercedes- it’s great quality and people pay out thee nose for it. There brand is synonymous w/ cutting edge technology, safety and a good value when it comes down to it. But everyone knows a automobile is a bad investment but does that stop the market. No!
Marking down seasonal items during the season does not have to show you like faith in your product. It depends on what the product is and how you previously been marketing it because if you’re selling candles.or in this case case on how you perceive their marketing it, and because it drives welll
Markdowns and clearances are not static or one-size-fits-all. You need to constantly test and learn from your results, and adjust your strategy accordingly. You can use various methods to test different variables, such as A/B testing, split testing, or control groups. You can also use feedback and reviews from your customers and staff to gauge the effectiveness and impact of your markdowns and clearances. For example, you can test different markdown percentages, timing, locations, or formats, and measure their impact on sales, margin, inventory, and customer satisfaction.
Testing and validating it with data is most important. While A/B testing ,Split testing is good and should be used. Your pos data should give you the validation if a particular Markdown strategy fits as of yours inventory objective is concerned .
Finally, you need to monitor and evaluate your markdown and clearance performance on a regular basis, and compare it with your objectives and benchmarks. You need to use relevant and reliable metrics and tools, such as dashboards, reports, or analytics software, to track and analyze your data. You also need to review and update your markdown and clearance policies and procedures, and ensure that they are aligned with your merchandise strategy and best practices. For example, you can monitor and evaluate your markdown and clearance frequency, depth, duration, and return on investment, and identify any gaps or opportunities for improvement.
This is where an effective Integrated inventory management comes in handy. Relying on weekly or monthly data from yours Mis person does not full fill the objective. A real time dash board is what you want.
To sum it up Merchandise Strategy is an extension of yours Brand strategy. If you have postion yourself as an premium brand and facing Problem of stale inventory which you are not Selling , Thinking of the dent it will create to your brand is not new to you. I can say this by my interaction with industry leaders and my own experiences . The Best way to plan for this situation is to plan for in Procurement . and if you have multiple channels to sale a good product allocation so as your inventory is never stale As you say every thing sells you need to know where to get it sold with out Conflicting or hampering yours brand image
Consider the reason for poor performance of merchandise. If it was impacted by other items in your assortment and is highly interchangeable then it will be worthwhile to consider what impact a markdown would have on the balance of your assortment.
When offering clearance, it's important to leave some meat on those bones! Companies and their salespeople are quick to hack the margin down to nothing just to move products and hit their goals. When it comes to clearance, the customer understands that it's haggling time. Smart customers are prepared to take you to the cleaners. Do yourself a favor and leave room for further discounts. You'll be shocked at how often you don't have to.
Stock ageing is monitored consistently to ensure markdowns n promotions are in sync with stock sales to ensure effective movements.
The most important objective to remember is to not lower your brands image but having too much overstock/clearance. Your objective is to slow markdown while merchandising in a manner ahead of time to limit an abundance of left over stock. You want to make sure you view your market and product flow to branch product out. Almost make it seem like your clearance is low stocked to send products off the shelf quicker to insinuate a “good deal”.