Admittedly, markdowns are not the most thrilling part of retail pricing. They lack the flashy excitement of promotions and the foundational importance of base prices. However, those of us on the pricing optimisation side know a secret: markdowns actually have a lot of untapped potential for most retailers.
It’s true. Markdowns present some major low-hanging-fruit opportunities for profit and revenue. But to capitalise on them, retailers need to change how they view markdowns.
Before we dive into how best to drive positive outcomes from markdowns, let’s take a second to discuss why many retailers don’t even realise that markdowns can be an opportunity to drive further margin and support pricing goals.
The first reason is the typical retailer mindset towards markdowns. Normally clearance pricing is simply not a priority. It’s a small percentage of your product assortment, and your main goal is just to clear out the old to make room for the new. Traditionally, markdowns are written off as lost margin and not thought about twice. But the truth is, this mindset has you leaving money on the table.
Another major reason is that sometimes emotion can get in the way. It’s not uncommon to hear about buyers making emotionally charged decisions because they have a great relationship with the supplier, they are heavily invested in the purchase decision they made, or they view leftover product as a failure. After all, the acknowledgement of excess inventory means it didn’t sell as well as was anticipated.
But whether that’s due to miscalculated demand, a misstep in the pricing, or any number of external influencing factors, that feeling can tend to lead to emotions calling the shots for markdowns. However, the last thing you should do to cover less-than-stellar sales when you reach the end of the product lifecycle is put forth a less-than-stellar markdown plan.
So, how do we move forward and fully capitalise on markdowns? By embracing change and leading with data.
Clearly a mindset change is required here. Retailers first have to see the potential and decide that markdowns are worth the investment of a more focused strategy. They will also need to find the right data-driven tools to fuel that strategy.
Second, retailers need to abandon the reliance on last year’s plans and tactics. This is common pricing practice across all stages of the lifecycle, but common doesn’t necessarily mean great. Shopping habits have changed since the pandemic, changed again, and continue to change at a rapid pace. And that includes habits around clearance shopping. Retailers need to understand in real-timehow the current economic environment affects consumer purchasing behaviours, and adjust markdown plans accordingly.
Another factor to getting the most from markdown opportunities is timing. Whether you’re dealing with a core-range article nearing the end of its useful life or need to clear shelf space to make room for next season’s items, the markdown cadence is crucial to clearing items profitably. And yet, while timing is so important, retailers often rely on gut instinct to set cadences, instead of data.
The most common mistake we see around markdown timing is waiting too long to start. Retailers sometimes wait until demand is gone to mark down an item, but by then it’s too late. Trying to revive dead demand results in steeper discounts and margin loss. However, data-driven markdown plans capture waning demand before it’s gone to push more sell-through and revenue.
Without any sort of AI-driven solution or strong data analysis, knowing what discounts to apply and when is difficult. Relying on spreadsheets alone quickly gets out of hand, while universal cadences ignore opportunities to tailor markdowns to fit consumer demand.
Being data-driven allows you to determine the most profitable markdown plans to maximise sales, margins, and sell-through. With the right solutions in place, you can create effective and efficient markdown plans that clear inventory quickly and improve pricing performance.
Markdowns are an inevitable part of retail. But just because discounts are essentially unavoidable, that doesn’t mean they have to be done at a loss. Our markdown clients have come to realise that the Revionics Markdown solution is the tool they never knew they needed, but now they could never go without.
To learn more about optimising your markdowns with clarity and confidence, get in touch with our team of pricing experts today.