Prices Come to an End. Markdown Prices
This merchandise that remains on the shelf, dresser, distribution center or warehouse means money held by both the footprint and its value. Plus it depreciates quickly.
That is why you need to have clearance prices. Within the life cycle price starts with the normal price, promotional price and finally arrived at markdown price. In this the objective is not to make more money but reduce the loss and mobilize the lagged inventory.
Markdown is a lose
Markdown merchandise usually is a loss and is considered from the start of planning, to mitigate the effects of it, clearence strategies are applied to move the products as soon as possible.
The scenarios in which a strategy is required to liquidate goods may be:
- After a big promotional event as Valentine’s Day or Halloween; as it happens or even the same day the products are marketed at auction because the demand is very brief and then the products no longer have many sales
- For the new season, when spring-summer to autumn-winter is passed for example, the products of the previous season are put into liquidation to make room for new products that will be in demand
- When adjustments are made to the category; products are removed by low sales, because they come from the market or to be replaced by another, and the former is put into clearance
- And when it comes to products with short life cycles as electronics or clothing in which the model that is now novelty, in a short time will be replaced by the new version, and then the former has to be settled promptly
What is a Markdown?
Is a decrease in the price; unlike a discount or promotion, which are temporary price reductions.
The downgrade is done until the product is exhausted and the price does not return to baseline, while the discounts on the price decline are temporary.
When a markdown is made, for the product it has to take into account the location of the goods, the number of units available and the sales performance it had, to make a plan of cuts to suit demand on each location.
If the merchandise is markdown directly on the shelf, it will cost less because it will be only re-labeled and promoted, whereas if the goods are in the warehouse or distribution center, include the cost moving it to the shop floor, which further increases the expense representing the merchandise on sale.
When making price reduction, sales should increase but with a lower profit, although this loss must be budgeted from planning, you should make every effort to reduce it.
The objective is to mobilize the lagged merchandise that did not sell according to plan.
Generally the faster, with less decrease in price and the minimum movement of goods, the markdown is more effective.
Although depending on the strategy of the store, there would be another banner to sell stocks and not affect the quality image of the store.
But if a product has low sales in a store or region, does not mean you have a clearance with the same discount or the same range evenly.
Each store has different consumer behaviors, location, format, among others. That is why we must adjust the markdown to maximize their impact.
Components of a Markdown
Has two components, the depth and range.
- The depth of the settlement means the percentage of discount that will have the product; this may be for example 10, 30 or 50%
- The interval is the time period for increasing the discount on the price, starting with 10% in the first week, 25% going to the next and finishing with 40%
If it is fixed for all stores and regions, you might lose opportunities to make more profits because, for example if the summer clothing is settled in all regions with the same depth and interval likely will not have the same impact.
The disadvantage of this strategy is that the loss becomes more intense throughout the chain by differences in individual sales that could be used for better performance on the markdown.
This is what most retailers in do; markdown the products in accordance with a fixed rule in their inventory systems. If the product is X days underperformed, then it will be marked down. The first week to 20%, the second 40%, third 60%, and finally sold at cost. This plan applies to all stores and products.
If it is swimsuits, in states with warm weather, sales would remain stable and would not make sense to make a markdown, but in the cold states is ok to do so because the clothes will never be in demand until next warm summer season.
When it comes to improving earnings have to be attentive to every possible detail to enlarge them power.
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