How do I get control over markdowns?

In Merchandise planning you plan promotional markdowns and permanent markdowns. Promotional markdowns tend to come earlier in a product’s lifecycle and permanent markdowns happen at the end, causing an imbalance. If a style doesn’t sell as expected, there’s no other option than to sell it at a reduced price.

This pattern of overestimating sell-through makes it challenging to maintain gross margins. By the time an underperforming style is marked down, your promotional markdown budget has already been spent, making it impossible to shift budgets around to prop up your overall margin.

To combat this, you’re forced to either plan fewer promotional markdowns and risk losing a competitive advantage or minimize permanent markdowns at the expense of holding on to inventory for longer than planned.

Either way, you’re losing control over markdowns.

See also: Creative Marketing For Permanent Markdowns Is A Band-Aid Solution

To gain control, you have to review your decision-making during the merchandise planning and buying process.

It’s impossible to predict exactly how a style will sell, but there are indicators you can use to get an informed estimate.

On the buyer’s side, fashion trends are significant. Buyers use their knowledge of the brand and customer to select the right styles. They can also account for changes in trends to hypothesize which styles will resonate best with customers, well before those trends gain popularity.

Using this information alone, however, leaves out a big part of the story. Using generalized trends and soft evidence to make good-better-best types of buying decisions means ignoring the data you have about how likely customers are to purchase different styles.

Your sales data can tell you a lot about how different types of products perform. For example, customers may have varying tastes across different geographical areas. And you may have groups of stores where customers are much more likely to buy causal items than fashion items, or vice-versa. You can use this kind of information to ensure you’re buying products for only the right stores. And you can combine it with sales volume information to calculate an accurate quantity of units for each style in a given assortment.

See also: How To Buy Based On Customer Demand

Combining the intuition of the buyer with tangible evidence of customer preferences can help you do a better job of matching your buys to your ability to sell different products.

At daVinci Retail, we even go as far as to say that buyers are actually better suited to make decisions about the depth and breadth of assortments than planners because they have insight into future trends, as well as historical performance.

So how does all of this help you get control over markdowns?

It comes back to the time conundrum. Even though there’s more flexibility in merchandise planning promotional markdowns, those decisions have to be made on the assumption that permanent markdowns will stay within budget.

By having buyers use data to consider in detail how each item will be allocated before the buy is committed, you can better match buy quantities to customer demand. And by using the same parameters to make decisions over time, you can learn and refine the process to continue improving sell-throughs and get better control over markdowns.

As permanent markdowns reach a more acceptable level and become more predictable, you’ll be able to budget more confidently for the markdowns that add strategic value to the business, rather than holding back for the markdowns that are meant to be a last resort.

Markdowns are always going to be a part of every retail business, but markdowns only hurt your bottom line if they’re not under control. Making better use of data and making allocation decisions at the right time in the buying process can help you get control of markdowns and regain your competitive advantage.

See what your margin improvement potential is here >>