Although this last holiday season did not live up to all of retailers’ expectations, there is recent data that indicates sales increases for certain types of retailers. According to First Data’s Holiday 2016 SpendTrend report, retail spending increased 3.6 percent during this last holiday season, which was in-line with the National Retail Federation (NRF) forecast.
The data report cited that the best performing retailers were building materials stores, electronic and appliance shops and health and personal care stores. The worst performing were general merchandise shops. Also, clothing and accessories stores had challenges, as sales came in flat. In addition, according to the report, shoppers continued to gravitate towards online as retail eCommerce transactions increased 12% year-over-year.
Retailers are finding, especially in areas such as fashion, that it’s not just about competitor pricing, or having the lowest price for merchandise – it’s more about ensuring the shopper’s path-to-purchase is extremely customer-centric and their markdown strategies need to drive traffic and provide incentives that motivate consumers to purchase.
The Problem with the Traditional Markdown Strategy
Retailers are marking down merchandise because they don’t want to miss out on sales—and they want to clear out inventory that loses value the longer it sits on the shelf. They want to not only incent shoppers to come into the store, but also avoid losing them by not providing the right value and deal to buy now. This explains why retailers may take multiple markdowns within a day, from 30% to 40% and then an additional 20% for select customers. The problem is that retailers are giving away profit for a chance at a sale.
But this fly-by-the-seat-of-your-pants strategy is costly. And what retailers might not be considering is that in addition to lost sales revenue, their markdown activity is influencing customers’ perception of their brand — and this can have a long-term impact on business growth.
Retailers are acknowledging this as well. According to a predictive insights study conducted by EKN, retailers are attributing a loss of 3.3% & 2.5% of inventory turns and operating profit, respectively, by not having a markdown optimization solution.
Move Toward an Effective Strategy
Retailers need a markdown approach that profitably clears inventory and maximizes brand value. Keeping customers happy and profit margins favorable requires a keen understanding of the marketplace and the tools required to make the most of the trends. Lets take a look at the factors that will drive markdown strategies in 2017:
Changing Seasons & Marketplace Buzz
A trend specific to retail is the relatively short sales season. Quarterly inventory turns means prices will change quickly and with more frequency as their peak season comes to an end. While these seasons may apply to winter, spring, summer, and fall, some products have shorter lifecycles, often due to external forces over which retailers have little control. Weather has always been obvious, but think about the impact of social media, celebrity rants and raves, and even the influence of bloggers. Marketplace buzz puts retailers at-the-ready to adjust prices—usually downward—to manage supply and demand.
Shoppers “Go Discount”
Unless an item is a “must-have” for which your target customer is willing to pay full price, it’s highly likely you’ll have to play with its ticket price. It’s not a revelation that shoppers prefer a discount, but today, most shoppers are considered discount shoppers. According to NPD, consumers who shop at off-price retail outlets account for 75% of all apparel purchases across retail channels.
Whether or not your customers regularly shop at off-price retail outlets, it’s highly likely that to avoid paying full price for an item, they’ll wait for it to go on sale. Or, they’ll simply find it for less somewhere else.
Keeping Pace with Changing Shopper Behavior
With so many purchasing options available for shoppers – online, in-store, mobile, etc. – consumers shopping behavior is ever-changing; therefore, retailers need to manage their markdowns with demand across all channels. To do this, retailers are adopting proven markdown planning and optimization technologies, which recommend the optimal discount and cadence while predicting demand. This is especially valuable for fashion retailers as it helps them achieve inventory sell-through boosts, sales/volume increases, strengthen profits and ends the vicious cycle of margin-eroding discounts.
Check later this week for part 2 of this blog, I’ll be discussing new approaches and how to leverage the science of discounting to focus on those markdowns that truly have impact while preserving margin elsewhere.
Meanwhile, I encourage you to check into these resources:
- Download Revionics new eBook Fit For Fashion: Discounting in Style for more about the markdown pressures faced by today’s retailers and learn how to put an end to destructive margin-eroding discounts.
- And don’t miss your chance to connect with us at NRF’s Retail’s Big Show 2017 from January 15-17. We’ll be showcasing our SaaS solutions for Price, Markdowns and Promotions at Booth 3553. Plus, Revionics, EKN Research and Farmacorp are participating in an expert panel – “Facing the Future: Trends in Pricing and Promotions for 2017” – on Monday, January 16, 10:15-11:00 a.m. EST at the Jacob K. Javits Convention Center EXPO Hall, Room 2, Level 1. Click here to set up a meeting with one of our experts at NRF