Newport Beach, Calif. – May 24, 2011 – The word “markdown” is enough to make most retail executives cringe. Markdowns are often associated with margin degradation and profit loss – and some companies believe that cutting prices for their products could negatively impact their brand image. But it might be time to reevaluate that perception.
“Although inevitable, retailers have historically viewed markdowns as a necessary evil designed to help sell old or slow-moving inventory,” said Peter Leith, director of product strategy, JustEnough Software. “However, in an era of intense competition among retailers, growing demand for consumer price transparency and the mounting threat of inflation, businesses are starting to rethink their pricing strategies – and thus, their perception of markdowns.”
Recent research supports this shift: 48 percent of companies surveyed for Retail Systems Research’s 2011 annual pricing report said they have deployed or are in the process of rolling out markdown planning and forecasting solutions. Another 33 percent of survey respondents are evaluating or exploring solutions to help improve these capabilities.
Proactively Thinking About Markdowns
What does it mean to have a markdown plan in place? Instead of simply slashing prices at the end of the season in an effort to offload unwanted products, retailers should determine early on which items they are willing to reduce in price over time and for how much.
“Taking a more proactive approach to markdowns will help retailers better manage product lifecycles and stock levels,” Leith said. “For example, if an item begins to fall behind its expected rate-of-sale, the retailer can tweak the product’s price to ensure it sells out by the end of the season. Price drops – even if relatively small – attract today’s discerning shoppers, who can actively monitor and compare prices anywhere and anytime via mobile technology.”
Using markdowns as a lever to keep traffic in stores consistently high can also improve product turnover and help keep inventory fresh and appealing to shoppers. Understanding how to treat markdowns as part of the overall planning process enables retailers to further refine their assortments, ensuring that they meet the needs of their customers. This, above all else, will deliver the margin improvements today’s retailers seek.
All of the above-mentioned benefits – increased foot traffic, better product lifecycle management and a fresher mix of products – help retailers reach the ultimate goal of strategic markdown planning: reducing the number of stock write-offs at the end of a selling season.
Strategies to Execute a Well‐Defined Markdown Plan
Deciding to implement an effective markdown planning process is one thing – but actually doing it is another. JustEnough Software, a leading provider of demand management solutions for retailers, suppliers and brand owners worldwide, recommends the following strategies to help companies make the most out of their markdowns: