Mastering Retail Markdowns in Merchandise Planning
In merchandise planning, you focus on both promotional markdowns and permanent markdowns. Promotional markdowns occur earlier in a product’s lifecycle, while permanent markdowns happen at the end. This timing creates an imbalance: if a style doesn’t sell as expected, the only option is to sell it at a reduced price.
This pattern of overestimating sell-through often makes it difficult to maintain healthy gross margins. By the time an underperforming style is marked down, your promotional markdown budget may already be spent, leaving you unable to shift funds to improve overall margins.
To cope, you face tough choices: either plan fewer promotional markdowns and risk losing your competitive edge or reduce permanent markdowns at the cost of holding unsold inventory longer than planned.
Either way, you lose control over your markdowns.
To regain control
Review your decision-making during merchandise planning and the Assortment planning process.
Although predicting exactly how a style will sell is impossible, there are indicators to help you make informed estimates.
For buyers, fashion trends play a major role. They use their knowledge of the brand and customer to choose the right styles. Buyers also account for trend shifts to predict which styles will resonate, even before those trends fully emerge.
However, relying solely on this intuition can leave out crucial data. Generalized trends and soft evidence used to make buying decisions often ignore hard data on how likely customers are to purchase different styles.
Sales data provides valuable insights into product performance. For example, customer preferences may vary across geographical areas. Some stores might have customers who prefer casual items, while others gravitate toward fashion-forward pieces. This data allows you to target the right products for the right stores. You can also use sales volume information to accurately determine the quantity of units for each style.
By combining buyer intuition with customer data, you can better align your buys with the products customers are most likely to purchase.
At daVinci Retail, we believe buyers are often better suited to make decisions about assortment depth and breadth than planners. Buyers have insights into both future trends and historical performance, giving them a clearer understanding of what will sell.
How Does This Help Control Retail Markdowns?
The time conundrum is the key. Merchandise planning offers flexibility for promotional markdowns, but those decisions must assume permanent markdowns stay within budget.
By having buyers use data and state of the art buy calculations to determine buy quantity items before committing to the buy, you can better match quantities to customer demand. Over time, as you consistently apply this approach, you’ll refine the process, improve sell-throughs, and gain better control over markdowns.
As permanent markdowns become more predictable and manageable, you can confidently budget for markdowns that add strategic value, rather than relying on markdowns as a last resort.
Markdowns are always a part of retail, but they only hurt your gross margin if they aren’t under control. By leveraging data and making timely buy quantity decisions, you can control retail markdowns and regain your competitive edge.
Related Product
daVinci Assortment Planning
daVinci’s Assortment Planning solution gives merchants the power to tailor buys by the customer to improve sell-thru and ensure each assortment is profitable from the start.
