Planning for Markdowns
4 minute read
Approaching a dreaded yet necessary task for all retailers.
In every job there’s that dreaded responsibility that gets pushed aside, dismissed and too often ignored. In retail, that dreaded something is markdowns. Commonly considered a retailer’s worst enemy, markdowns can actually work to your advantage and help fuel your business for profit. The catch is understanding well in advance your markdown strategies for seasons ahead to help avoid a massive pile up of markdowns you never planned for. To help identify some of the best strategies to do this, we asked some leading industry experts to share their insight.
Cathy Wagner, founder RetailMAVENS, encouraged retailers to pay attention to their gut, as well as be mindful of what they’re ordering and how much.
“I always tell people that if you don’t love it, don’t buy it. That is a markdown waiting to happen. If you really love it and even want it for yourself — yet are worried that it is too expensive — then order it. Time and time again I find that an item like this will sell. Markdowns are avoided because you have spent your dollars on something that you believe in rather than some marginal items — such as items that you just ‘like’ versus ‘love.’ This can make all the difference in successful items versus non-successful ones,” Wagner said.
Furthermore, Wagner explained that how much of what you order is key.
“Look at what your sales are trending for the next six months and divide that number by two. Do not order more than that amount. If you do, you are practically guaranteed to have markdowns,” Wagner firmly suggested.
Wagner’s advice is smart, providing a clear yet easy example of how retailers can plan ahead for inventory to avoid markdowns. But what happens when a busy season is approaching — such as the holidays — and planning inventory isn’t quite as predictable? Wagner suggested identifying upfront how to promote and sell during seasonal or special events to help inventory move faster and in more volume.
“If you find an item that you are absolutely crazy about or know that a particular time of the year, such as the holidays, demands more volume, then don’t be afraid to commit to a scary large order. What’s key, however, is to make special and specific plans to sell those items,” Wagner explained.
Some ways to help do this may include planning an in-store event that is promoted above and beyond your normal store events or planning a strategic email marketing campaign that helps encourage customers to both come into your store or buy from you online. Additionally, you can create a special contest among your store employees around a specific vendor or item to help generate stronger sales among those particular items. Combined, these efforts can reduce your chance of markdowns and increase your chance of successful sales.
Identifying items you love and planning events in your store can certainly help get you on track with sales, but those details alone don’t always do the trick. One of the best ways to ensure you are managing your inventory well is by reviewing data.
“If you don’t thoroughly understand how your business is performing, what your cash flow is like and who your customers are, growing — or even just running — your business can be a real gamble,” explained Vaughan Rowsell, Vend CEO.
Vend, a point-of-sale company that helps independent retailers manage their inventory and customer loyalty, delivers software specifically designed for merchants to track, manage and review their inventory sales. Having organized sales data provided by a POS company like Vend is key in establishing a clear understanding of what is and is not selling in your store. Plus, and possibly even more importantly, POS systems offer retailers the chance to review the actual spending habits of their customers.
“Seasonal highs and lows are bound to take place and no matter what the mass market tells us, every retailer has their own pattern,” explained Georganne Bender, one half of the retail expert team and speaking duo Kizer & Bender.
With this in mind, consider what your markdowns have been in the past and what led up to them. Did you have a strategy in place that identified when you would mark down items and how long you would wait until you gave them another red slash?
The root cause of excessive markdowns can almost always be traced back to the lack of adequate pre-season planning, and in-season adjustments to those plans. Lack of adequate pre-season planning will ultimately lead to a crash and burn markdown scenario, however, effective pre-season planning will lead to markdown success. Just don’t forget to incorporate in-season adjustments based on selling trends, market data and customer analysis.