by Steve Pruitt

Q: I keep hearing my fellow retailers talking about the difficulty in selling markdowns. What happened to customers looking for a good deal?

Steve Pruitt: I have been hearing the same sentiment for quite a while. I’ve talked with a number of merchants and the consensus seems to be that markdowns don’t drive as much business as they did in the past. On the other hand, you can trigger some demand with a smaller markdown than you took historically. The trick now seems to be the timing. For instance, an early (say May 25th) 20% markdown works as well as a 30% markdown on June 15th.

We did a test with one of our merchants. Traditionally the merchant did a staged markdown (first markdown at 40%, second at 50%, and the third at 60%) in mid-July as a part of their summer clearance. This year at the same time (mid-July) we did progressive markdowns at a slightly lower rate (30%, 40%, and 50%). The store sold the same amount of units and increased both their revenue and margins.

The sale customer still needed something to bite, but not as much. The merchant also told me that there was no negative feedback from customers because of the change in markdowns. I also asked the merchant about the mix of inventory, and whether it was any different. His answer was that turnover had increased by about 15% in the last year, and as a result, his aging inventory was a little fresher. This told me that increasing the turn rate can also help retailers manage markdowns.

I guess the answer here is to make sure that your markdowns are timely, and to be more selective about what you markdown. It’s hard making a buck in the current market, so you have to get smarter.

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