Inventory is a retailer’s most significant investment, and knowing how to manage inventory effectively is a key to success. You want to maintain adequate supply to meet customer demand, so you’re not turning away disappointed shoppers and losing sales because of outages. But you also don’t want to get stuck with an excess of items that aren’t selling. When that happens, it’s time to implement retail markdown strategies; and your point of sale (POS) solution can help. Here’s what you should know about markdowns.
Why Markdowns Matter
You need to keep your inventory moving. Products that are stagnant on your shelves are a chunk of capital that you can’t use; plus, they’re incurring maintenance costs (e.g., warehouse storage) and taking up valuable space that could be used for other items that would sell faster and at full price. Retail markdown strategies can help you recoup some of your investment on those purchases.
Markdowns vs. Discounting
Markdowns should not be confused with sales or discounts, as they work differently. A discount is a temporary price reduction offered for a special promotion or event, or offered to a specific subset of customers—for example, student, senior citizen, or military discounts — in order to attract more customers from that particular demographic. A markdown is a permanent reduction of the initial asking price, and the main goal is to clear out inventory that isn’t selling. You should avoid having too many sales or discounts, because customers will stop buying at full price if they know they won’t have to wait long for a sale. You also risk devaluing the brand prestige and perceived quality of your items if you’re constantly slashing prices. Apply your markdowns judiciously for best results.
When to Markdown
Every product has a shelf life—particularly in fashion, where trends can shift quickly, and hanging on to non-performing items hoping to still get full price is counterproductive. Many items are seasonal: you don’t want to have a store full of bathing suits and flip-flops when customers are ready to start buying sweaters and scarves. Or perhaps you simply misjudged consumer demand, and an item you thought would be popular, isn’t.
So how do you know when and how much to markdown? Every store owner will have different factors to consider, but here is a good general guideline to start with when products aren’t moving:
- After 60 days: markdown 30%
- After 75 days: markdown 50%
- After 90 days: markdown 70%
The sales data from your POS system will help you identify which items are performing poorly and may need to be marked down, and it will help you gauge the effectiveness of your reductions.
Benefits of Markdowns
Retail markdown strategies can have a positive impact on your business. They can rejuvenate your cash flow, releasing money that was tied up in stock sitting on your shelves. They can free up store space for new products that will entice buyers and will sell at full price. And they can be learning experiences that will help you make better purchasing decisions in the future.
Big Data and Forecasting
While retail markdown strategies are useful, a better goal is to minimize the need for them by optimizing your inventory levels and avoiding overstocks. The right POS system will provide a wealth of historical data that you can leverage for strategic forecasting of consumer demand. Analyzing previous inventory performance will help you make informed decisions about which items to stock, in what quantities, at which store locations. An integrated omnichannel retail store should have visibility across all locations and access to data from all sales channels, making forecasting better so your inventory will keep moving at full price.