Winter 2009

The Price is Right! Or is it? By Lynn Switanowski

Going Down the Markdown Route

You were convinced the candles you ordered were going to sell really well. They didn’t. Do you know why some products go down the markdown route and others don’t?

Markdowns can be a great way to generate sales for any business. It can also be a great way to liquidate “mistake” merchandise, or simply to liquidate merchandise that is no longer seasonally appropriate and to make room for new merchandise to flow in. Let’s discuss some of the reasons that your business might need to lower the ticketed retail price of merchandise in your store. Price reductions typically come in three different categories:

1) There are buying related causes. This is where most stores need to address markdowns. Included in this category are reductions due to assortment errors. There are also timing errors that you didn’t catch such as late shipment or ordering too much. Or perhaps you ordered from a new vendor and you misjudged the quality of the merchandise. Another buying related cause could be a supplier error such as late, damaged or incorrect shipments

2) Another category where markdowns would need to be taken is selling related causes. These include pricing errors. (Just another reminder that it is critical for your store’s pricing strategy to be aligned properly with your business goals!) Some stores also use markdowns to stimulate sales.

3) And lastly, there are operational related causes that may require you to take a markdown. These include damaged or dirty merchandise, odd lots or consumer shifts for certain products you carry.

Depending on the reason that a markdown needs to be taken, retailers must enact a strategy to finish the liquidation of the distressed product. How much of a reduction to take, and when to take the reduction, becomes the next decision that you need to make. This is the most critical decision after pricing that happens. When products sell, every retailer wins, but having a strategy for dealing with merchandise that isn’t selling, after everything you have tried (correct pricing, marketing activities) is where you can either maintain, or give away your ultimate profits.

Lynn Switanowski

Lynn Switanowski-Barrett is the founder of Creative Business Consulting Group, a retail-consulting firm based in Boston, MA. CBCG works with businesses of all size to create and implement profit-improving sales, marketing and inventory management strategies. For more information, please email lynn@cbc-group.net.