Markdowns are an essential part of every retailer’s toolkit. They allow you to incite demand while making space on your floor for new, full priced inventory. And, many times, markdown offers lead to a full-priced sale.
But one challenge we are seeing right now is that many merchants have gotten out of the habit of using markdowns in the face of what seemed to be unending post-pandemic lockdown demand.
After all, we have seen year-over-year growth every month since March of 2021. That stopped last month when demand finally started to wane, dropping us into a more “normal” sales cycle, with seasonal peaks and valleys. As demand tapers we need to take markdowns back out of our toolbox to keep inventory from piling up (which we are already seeing.)
We did use very light promotional markdowns of around 11% during the pandemic recovery, but these were smaller than the average markdowns for 2019 of around 21%.
The great news is that sell-throughs have been running at unprecedented levels. As a result, there has been little need for assertive markdowns. In many cases there have been almost no markdowns taken. But, even in these unusual times, sell-through rates have not been 100%, and residual inventory is slowly building. Add this residual buildup to the slowing trend that is leading to a more normal cycle, and there will be a need to use markdowns again.
So, the time has come to assess your need to push the markdown button. Don’t be shy—you have likely built a great margin reserve. Scour the back room and look for all the leftovers.
Right now, we are recommending that merchants push the markdown button at a rate of 20% to 30% off for a first markdown, and 40% to 50% for a second markdown. Then, there is normally some type of final clearance that sweeps out the ends; may times this is a multiple unit offer. Remember, markdowns have a cadence, and this cadence normally lasts six to eight weeks.
What happens if we don’t use these tools? That’s easy – we’ve seen it again and again with retailers reluctant to mark down. Inventory starts to build, cash flow is strangled, merchants don’t have enough open-to-buy to get new items that will bring customers in again, and bills start to pile up. Sounds stressful, right?
As we look toward fall of this year, we know that the demand is tamping down, and we need both newness and the attraction of discounts to try to stabilize sales. The holiday season will probably still be strong, but we want our books to be in good shape as we face a potential softening in 2023.
The post-pandemic recovery was a boon to many merchants, especially after store closings ate up their savings. Let’s not let all that hard work go to waste. Today the customer is still in a mood for buy now, wear now. Take advantage of this demand and clean out the loose ends before the fall season opens in the next thirty days.