The Price is Right
Sure, it’s the most wonderful time of the year. But what to do with unsold product after all the merriment dies down? Here are some ideas to make merchandise move.
While the idea of cutting prices may make retailers cringe since it impacts their bottom line, the reality is that you’re wasting precious retail floor space with products that aren’t moving and that can be costlier than the products themselves. Having a markdown strategy helps you avoid slashing prices at the end of a season in an effort to unload unsold products. If done right, markdowns also make you a better retailer. By taking a more proactive approach to the markdown process, you can better manage product lifecycles and stock levels.
Here are four easy steps to make the markdowns painless, profitable and fun.
Consider price elasticity. Before finalizing the retail price of the item, consider the markdown price in case it will be necessary to implement. Knowing in advance what the markdown price may be can lessen the margin hit if a permanent discount is necessary.
Schedule it on the calendar. Be proactive and know when you’re going to do your markdowns. Some retailers will markdown items if they see they won’t be able to get full retail price on them. Others will only do markdowns during certain times of the year. Monitor your sales figures and cycles to determine which strategy works best for you.
“On seasonal merchandise we evaluate our stock position three to five days before Christmas (and Halloween and Easter) and in the past few years, we have taken 25 percent off all Christmas merchandise three days before Christmas,” says Sonia Sotire Malloy, owner of SPLURGE Unique Gifts, Home Décor and Jewelry in Greenwich, Conn. “This motivates customers to purchase a holiday-specific gift and is a less costly markdown for us vs. 50 percent off on December 26.”
Although markdowns are usually considered at the brick-and-mortar level, online retailers are not exempt from having a markdown strategy as they, too, have to manage their inventory shelf space and open-to-buy budget. Kate Harris, owner of Crossroads Trade, a Seattle-based e-commerce site that sells fair trade items both online and at special events, considers several factors when determining when to markdown her items including how many weeks there are between Thanksgiving and Christmas and on what day of the week Christmas falls and when Hannukah occurs. Just as important as deciding when to start the markdown is when to end it.
“Choose a date to wrap up your after-holiday sales,” says Gina Lempa, an independent sales representative for Melrose International and Vickerman Company. “Communicate that date through your signage and social media efforts. And, when that day comes, remove it from the shelves, pack it away and don’t bring it out again until next season or for your Christmas in July sales blowout!”
Another benefit about having an end date, Lempa says, is that it will help to train your customers that if they want it, they best purchase it now, because it will likely be gone when they come back for it later.
Determine the magic markdown figure. Sotire Malloy was once given the following advice by somebody she highly respected: Your first markdown is your best markdown. “This holds true for us at SPLURGE,” she says. “Fresh markdowns entice customers to buy, and I have found that it is best to put out your most aggressive offering first. We take 50 percent off of all items that we really want to move versus starting at 20 percent off and becoming more aggressive over time.”
Lempa feels it’s best if retailers start before the holiday is upon us by offering discounts. “It’s better to offer a enticing 25-30 percent off discount or ‘Buy one get one’ on specified items than to hold off and start marking things down 50 percent, 75 percent or more like other stores do traditionally after the holiday.”
Lauren Woods, owner of Cracker Jax in Dekalb, Ill., sets aside her markdowns in a Sale Room where everything is 75 percent off. “The day after Christmas we mark all our holiday down to 75 percent off…we’re ready!” she says.
For those with warehouse space to store inventory, it may make financial sense to store the items and sell throughout the year than marking down (reviewing your sales reports will give you a better idea if it makes more sense to sell at a discount or store to place the merchandise back on the sales floor in the future).
Cynthia Sutton-Stolle, owner of The Silver Barn in Columbus, Tex., only marks down once a year and it’s a big one. The sale is in June and coincides with the gift show season. Whatever she doesn’t decide to mark down, she packs up and stores in her warehouse. Whatever remains in the store is part of an entire store sale with areas starting at 25 percent. Other areas have different discounts and cap at 75 percent.
Be creative in your markdowns. Rather than just slashing prices, Lempa recommends retailers create just as much excitement around markdowns as any other event in their store.
“Create sale events, days or weeks to move product out the door,” advises Lempa.
Start early, change it up and create excitement through your mailers, social media and signage. Keep the categories specific and relatively brief.”
Another approach to lessen the financial impact of a markdown is to design gift combinations with those products, says Lempa. “Price them well, creatively demonstrating the added value in the combination and package them in a ready to go to the party or event kind of way,” she recommends.
Choosing the right markdown strategy from the beginning will make the process easier to execute and leave you in a better financial position than letting unsold merchandise collect dust.