Markdown Madness? No More Markdown in Retail Industry with Increff

Selling products below their intended cost, sometimes at a loss, to boost sales and managing a high volume of customers while competing with competitor brands, especially in fashion, isn’t easy. The tightrope walk between driving revenue and preserving margins is a constant challenge. But figuring out how much to markdown in retail industry and, crucially, when to minimize losses is often harder. This is where sophisticated merchandising software comes into play, offering the insights needed to make informed decisions.

Not having a single average markdown percentage in fashion for ballpark purposes doesn’t help. For perspective, most brands have a markdown range between 10% and 70%, with the average falling between 30% and 40%, depending heavily on the brand’s product types, positioning, and overarching marketing strategies. This variability of markdown in retail industry underscores the need for tailored merchandising solutions that can adapt to specific business contexts.

This begs the question–should you even be marking down during sale season? We believe so, for better inventory management. Effective retail inventory solutions are crucial for understanding stock levels and predicting future needs, making strategic discounting a vital tool. This also highlights the importance of comprehensive retail merchandising solutions that integrate markdown strategies with broader inventory control.

Discounting is an Inventory Management Strategy in a Post-pandemic World

The retail landscape has undergone a significant transformation, accelerated by the pandemic. Buyers and planners are getting bolder and planning discount strategies to experiment more when buying to keep up with ever-shifting fashion trends. This proactive approach, often facilitated by advanced merchandising software, has resulted in leaner product life cycles that can be effectively managed with in-season discounting. These dynamic market conditions necessitate agile merchandising solutions that provide real-time visibility into inventory performance and proficient markdown in retail industry.

Margin Loss Preferred to Inventory Holding Costs

You know you’re losing money if your inventory isn’t flying off the shelf. The sight of stagnant stock can send shivers down any retailer’s spine. Most planners tackle this in one of two ways–selling off the product at a discount for markdown in retail industry, incurring margin loss, or holding their inventory, incurring inventory holding costs. Here’s a glimpse of what they are dealing with: robust retail inventory solutions help quantify these costs accurately.

• Margin Loss: This is the difference between the original selling price and the discounted price. It directly impacts your profitability per item. Without the right merchandising software, accurately forecasting and managing this loss can be a significant hurdle.
• Inventory Holding Costs: These include storage fees, insurance, potential obsolescence (a significant concern in the fast-paced fashion industry), and the opportunity cost of tying up valuable capital in unsold goods. These costs invariably increase over time, eroding profitability. Efficient retail merchandising solutions aim to minimize these carrying costs through strategic markdowns.

Smart planners are now increasingly choosing gross margin loss over the often-crippling cost of holding onto unproductive inventory. They’re leveraging the power of analytics, often embedded within sophisticated merchandising software to control markdown in retail industry, to meticulously monitor sales performance and intelligently predict future inventory pile-ups. This enables them to plan discounts proactively rather than simply reacting to poor inventory situations season after season. The adoption of data-driven merchandising solutions that controls markdown in retail industry is becoming a cornerstone of successful retail operations.

Here are a few things smart planners consider when building discount strategies and tactics to lower markdown loss optimally, often leveraging the capabilities of advanced retail inventory solutions.

The Smart Discount Pricing Strategy Almanac:

Creating a discount pricing strategy firmly rooted in inventory performance is a demonstrably effective way to maximize sales revenue while simultaneously minimizing potential losses during a sales event. Here are some top-line evaluation methods one can use, with a strong focus on inventory movement and potential revenue generation, all of which are significantly enhanced by the insights provided by comprehensive retail merchandising solutions that offers intelligent markdown in retail industry.

1. Categorize Inventory by Performance:

• Sell-Through Rate (STR): Calculate the percentage of items sold over a specific period. This critical metric, easily tracked and analyzed by merchandising software, helps identify both fast and slow-moving items with precision
• Days on Hand (DOH): Divide the current inventory level by the average daily sales to determine the estimated number of days the current inventory will last at the current sales rate. Accurate DOH calculations, a key feature of effective retail inventory solutions, are vital for proactive markdown planning.
• ABC Analysis: Classify items into A (high-value, fast-moving), B (moderate-value, moderate-moving), and C (low-value, slow-moving) categories based on their sales volume and profit contribution. This fundamental categorization, often automated within merchandising software, provides a clear overview of inventory performance.

2. Identify Slow-Moving and Aged Inventory:

• Set thresholds: Define clear and measurable criteria for what constitutes slow-moving inventory (e.g., items with a sell-through rate below a predefined percentage or a DOH exceeding a specific level). Merchandising solutions allow for the customization of these crucial thresholds.
• Analyze aging: Determine the precise length of time items have been in stock and categorize them by age (e.g., 30 days, 60 days, 90+ days). Sophisticated retail inventory solutions provide detailed aging reports, enabling targeted markdown strategies.

3. Analyze Sales Data and Trends:

• Historical Sales Data: Thoroughly review past sales performance for each individual item, taking into careful consideration factors such as seasonality, prevailing market trends, and the impact of previous promotional activities. Robust merchandising software provides the tools for in-depth historical sales analysis.
• Markdown Performance: Critically analyze the direct impact of previous markdown initiatives on both sales volume and overall profitability. Understanding the effectiveness of past discounts, a key capability of advanced retail merchandising solutions, is crucial for optimizing future strategies.

4. Develop a Markdown Calendar:

• Plan Timing: Strategically consider key factors such as seasonality shifts, upcoming promotional events, and the sales activities of competitor brands when scheduling markdowns. A well-defined calendar for markdown in retail industry, often a feature of comprehensive merchandising software, ensures timely and impactful price adjustments.
• Phase Markdowns: Implement a phased approach to discounting, starting with smaller initial discounts and gradually increasing the markdown percentage if items do not achieve the desired sales velocity. This iterative approach, supported by real-time data from retail inventory solutions, helps maximize margin retention.
• Coordinate with Promotions: Ensure seamless alignment of markdown activities with other ongoing marketing and promotional efforts to amplify their overall impact and drive stronger customer engagement. Integrated retail merchandising solutions facilitate this crucial cross-functional coordination.

Discounting engines typically help with all of the above as they are software solutions designed to automate and optimize the application of discounts across various retail scenarios. But the Increff MS Markdown Optimisation module takes it one step further, offering a more nuanced and intelligent approach to markdown in retail industry management than generic merchandising software.

Increff’s Markdown Optimization Module for your Inventory’s Markdown Management

Increff MS Markdown Optimisation module runs comprehensive discount engine logic.It meticulously evaluates a wealth of critical data points, including sales performance, current stock data for individual store locations and product type clusters (by intelligently grouping relevant attributes), and ultimately defines the most effective and profitable discount strategy tailored to your specific inventory needs. Here are a few more compelling reasons to be particularly interested in its advanced capabilities, setting it apart from standard merchandising solutions.

1. True Style Lifecycle and Not Just Aging of a Style Consideration

Unlike many basic retail inventory solutions that solely focus on the absolute age of each Stock Keeping Unit (SKU), Increff’s cutting-edge discounting module adopts a more holistic perspective. It intelligently considers the absolute age of each individual SKU and critically evaluates it against its pre-defined planned lifecycle to proactively identify whether a particular style is currently leading or significantly lagging behind its expected sales trajectory. This sophisticated analysis enables truly proactive markdown in retail industry management, ensuring that whether a style is simply older or, more critically, consistently failing to sell at the anticipated rate, the system will automatically recommend and assign an optimal discount level. This proactive approach is far more effective than reactive strategies often employed with less sophisticated retail merchandising solutions, preventing your valuable warehouse and store space from becoming unnecessarily filled with unproductive overstock.

2. Style Health Consideration

Without a deep and careful consideration of the overall “health” of a particular style within your broader product assortment, you might inadvertently encounter frustrating and costly stock outs for your consistently best-selling older styles right before a major sale event. Increff’s intelligent system proactively factors this crucial element into its calculations, helping you to strategically set appropriately higher markdowns specifically on broken inventory (e.g., incomplete size runs or limited color options) while preserving stock on your high-performing core items. This level of nuanced control is often lacking in more basic merchandising software.

3. Custom Style Grouping 

Many traditional retail inventory solutions and even some merchandising solutions only afford you the limited ability to document pre-defined, rigid style classifications. Consequently, if your brand frequently features multiple distinct style variations that fall within a single overarching product group, gaining a clear and accurate real-time visibility into the precise number of products available for each specific variation becomes exceedingly difficult. This lack of granular visibility inevitably leads to less accurate and less effective markdown decisions.
Increff’s innovative system empowers you to create highly customized style groupings tailored precisely to your unique product taxonomy. This means you gain the invaluable ability to logically place multiple related yet distinct style groups within the same broader category for high-level reporting, yet simultaneously analyze them separately and with pinpoint accuracy through the intelligent discounting software. Consider the example of collared t-shirts and polo t-shirts; both can be intuitively placed under the overarching category of “shirts” for general reporting purposes, but the Increff system will meticulously analyze their individual sales performance and recommend optimal markdowns for each distinct style with unparalleled accuracy. This level of customization is a significant advantage over many off-the-shelf retail merchandising solutions.

4. Target Discount Optimisation through Forward ROS Projection

Increff’s advanced system goes beyond simply reacting to past sales data. It intelligently optimizes final discounting decisions based on your overarching company-level targets by employing sophisticated statistical projection of the forward Rate of Sale (ROS). This forward-looking capability empowers you to proactively identify the most effective discounting actions to take right now in order to confidently achieve your desired targets for both discount spend and overall sell-through rates. This proactive and goal-oriented approach is a hallmark of truly effective merchandising software.

5. Price Elasticity Consideration

Your discounting software, to be truly effective, shouldn’t blindly suggest discounting if historical data indicates that price reductions have little to no positive impact on the rate of sale for a particular product. Increff’s intelligent algorithm proactively considers the critical price elasticity factor in subsequent discounting cycles, dynamically adjusting its recommendations based on the observed outcomes of actions taken in the immediately preceding cycle. This sophisticated feedback loop ensures continuous correction and optimization, particularly in scenarios where initial discounting efforts fail to significantly impact the rate of sale. This level of intelligent adaptation is a key differentiator from less sophisticated retail inventory solutions.

6. Discount engine customization

Recognizing that every retail business operates with its own unique set of market dynamics and strategic priorities, Increff provides unparalleled flexibility in customizing the underlying logic of its powerful discount engine. You have the ability to provide specific benchmarks and parameters for the discount engine’s decision-making processes, directly aligning its recommendations with your established business trends and strategic objectives. Furthermore, the system allows for granular overrides at multiple levels, granting you precise control over the discounting of particularly exclusive or strategically important merchandise. This level of customization ensures that Increff’s merchandising solutions seamlessly integrate with your specific business needs.

Conclusion

With trend cycles lasting less than a few weeks and planners experimenting with buying strategies, product life cycles are only going to grow leaner. This calls for proactive inventory planning and management by means of discounting. With the relentless pace of trend cycles showing no signs of slowing down, often lasting less than a few short weeks, and buyers and planners continually experimenting with increasingly dynamic buying strategies, product life cycles are only going to become leaner and more compressed. This evolving landscape unequivocally calls for a more proactive and data-driven approach to inventory planning and management, with strategic discounting emerging as an indispensable tool. Embracing sophisticated merchandising software like Increff’s Markdown Optimisation module is no longer a luxury but a fundamental necessity for navigating the complexities of modern retail and ensuring sustained profitability in an increasingly competitive market.

Increff helps retailers with both those things with granular data analytics to inform buying and pricing, trend-based allocation and replenishment and sell-through and organizational goal-based markdown optimization. Try Increff for yourself. Book a demo here.