Four things you can do to reassess your markdowns strategy in COVID-19 to better prepare and achieve stronger results.
Imagine putting together a 500-piece puzzle without knowing how the final result should look. Without vision, any objective can be daunting, and for most, this task would be nearly impossible. This scenario mirrors the current state of affairs for retailers during the Covid-19 era: too much inventory, not enough inventory, store closures and openings, decisions, decisions.
Now, take that same puzzle, but first, take a look at the image you are attempting to piece together. Your efforts become much more apparent, less frustrating, and more efficient. The bad news, however, no one has a clear picture of how disruptive COVID will be on the future of their business, but the more data-savvy employees you have, the more equipped you are to weather this storm. In the near term, the most pressing challenge for retail executives and their organizations will be having enough data about their business and customers to think they are making the right decision. Still, not enough data to know when they are wrong.
Let’s face it, for retailers, the concept of taking a markdown or introducing a clearance price can be somewhat taboo because it highlights the fact that critical decisions were made with imperfect information. In some capacity, you’ve missed the mark. On the one hand, a retailer can strategically leverage markdowns to transition seasonal merchandise to maximize profit and clear inventories effectively. On the other hand, what happens when you have leftover stock, no vendor allowances, and demand has evaporated? You end up with margin erosion due to unplanned loss leaders, missed opportunities to bonus, and the stark realization of how detrimental a mistimed markdown can be.
Top considerations for reassessing markdowns after COVID-19
Use science as your trusted advisor
Retailers who take a more scientific approach to understand their market are more equipped to make proactive, strategic business decisions. Answer this question, how price responsive are your customers for a given product? Most retailers would naturally call on their domain expertise built by tribal knowledge and correctly address this question. However, now more than ever, we should focus on identifying methods and tools to turn data into information, information into knowledge, and knowledge into proactive and equitable business decisions.
Stay calm. Be proactive. Test and Learn
Stress changes how people make decisions, especially decisions about survival. It is fair to say that most, if not all, traditional brick-and-mortar businesses are in survival mode. However, there is an interesting relationship between surviving and evolving. Organizations that fail to evolve tend to be the ones who were unable to survive. Change is inevitable, but what measure are you taking to evolve during this challenging time?
Have you started researching tools that will allow you better to understand your customers’ responses to your pricing decisions? Have you found a solution that provides localized markdowns, removes the emotion from key business decisions, or leveraged science to start your markdowns at the right time and depth? If not, you have some homework to do. If I told you there was a tool that did all that and more, would you be afraid to test new strategies and learn how to mitigate markdown risk proactively?
Bring up the bumper rails and hedge against risk
Unfortunately, at some point all SKUs become a business liability. Also, there are times when science even gets confused when dealing with outliers. Well, COVID is one hell of an outlier. What do we do when you use science as your trusted advisor, and the vision forward is still unclear? Be nimble, focus on your core assortment, and hardcode your business rules as a guardrail against risk. Similar to how a child needs bumper rails their first-time bowling, you too can take a step back and leverage software to codify your business rules. One potential recipe for markdowns success post-COVID is using software that leverages science to simulate future outcomes based on historical data and automates safe and strategic pricing decisions at scale.
Learn, markdown, and relearn
The world is complicated, and decisions are ever more critical. Not to be overly dramatic, but what was once your core assortment is up for debate, and you need to be comfortable with this. For the retailers who managed to remain open, when you walk your stores, have you noticed how some shelves are bare-bones empty while others have products that are collecting dust? This is a signal to all retailers that shopper preferences have changed, and essential things have become non-essential and vice versa.
In movies, when a large boat is sinking, or an engine goes out on a plane, the crew will start throwing things overboard to lighten the load to prolong their chances of survival. Now, this is not a recommendation to slash and burn your prices. Instead, seek to partner with a retail pricing expert to conduct an SKU rationalization analysis to identify end-of-life products that are ideal markdown candidates to free up some space to relearn what matters most to your customers.
Stronger markdowns, now and for the future
Retailers who consider the above and proactively re-evaluate their post-COVID markdowns strategy effectiveness with the right investments today will be strongly positioned to succeed in the years to come. Revionics can support retailers on this journey with numerous advanced markdown analytics and solutions and all of the retail depth and expertise to ensure that your markdowns become best-in-class.