5 Proven Markdown Strategies to Maximize Profit This Season
Markdowns are a powerful tool for retailers of all sizes, especially during the holiday season: they drive traffic to stores, clear excess inventory, boost cash flow and create space for new season stock.
Marking down products at the right time and in the right way ensures that retailers don't just survive the holiday season, but thrive by meeting both sales and inventory targets.
Here are five proven markdown strategies for retailers to maximize profits this season.
1. Timing Your Markdowns to Align with Historic Buying Trends
Markdowns should never be random : timing is crucial. In fact, retailers who optimize markdown timing can increase sell-through rates by 15-20%, boosting overall profitability.
By analyzing historical sales data, retailers can predict when demand will fall and adjust prices accordingly. To make such precise data-driven decisions, use retail inventory and POS software to schedule markdowns when inventory is at risk of becoming obsolete or when demand naturally drops.
2. Creating Tiered Discount Strategies to Drive Incremental Sales
Rather than offering drastic price cuts, create tiered discount strategies to drive sales incrementally. By offering smaller, increasing discounts over time, your products stay desirable and customers will more likely purchase items without undervaluing them.
Implement increasing discount levels based on product seasonality or use early bird discounts to encourage early sales without overwhelming customers. You can also track the effectiveness of each tier and make adjustments quickly, using retail POS software. In fact, McKinsey & Company reports that retailers using effective tiered markdowns saw a 20% increase in sales, compared to those applying blanket discounts.
3. Using Personalized Promotions to Clear Slow-Moving Inventory Effectively
Slow-moving inventory can be cleared with personalized promotions targeting customers most likely to buy. According to Harvard Business Review, they can increase conversion rates by 50%, leading to higher profit margins and reduced excess inventory.
To launch personalized promotions, use inventory and POS data to identify which products are underperforming and which targeted promotions can clear them.
Also use your customer data to send relevant discounts to customers who have shown interest in those product types but haven’t yet made their purchase. Incentivize loyalty program members with exclusive discounts on slow-moving products. This is particularly important knowing that 91% of customers are more likely to shop with brands that provide relevant offers and recommendations.
4. Leveraging Inventory Visibility to Adjust Prices in Real-Time
Real-time inventory visibility allows for dynamic markdown adjustments based on stock levels and market demand. Misjudged inventory decisions - such as overbuying, buying inappropriate products and misallocating inventory - account for 53% of unplanned markdown costs for retailers (NRF).
Implement an effective inventory management system to track stock in real-time. Use this data to adjust prices based on inventory levels and competitor pricing, minimizing the reliance on heavy discounting.
5. Implementing Seasonal and Event-Driven Markdown Strategies
To maximise profits, align markdown strategies with key retail events of the season, like Black Friday, Christmas or seasonal changes. You can both prepare for seasonal sales by offering markdowns ahead of such major retail events, and clear seasonal inventory thereafter.
Double up with cross-promotions on slow-moving products bundled with fast-selling items to take advantage of event-driven sales boosts.
Plan markdowns around major retail events and cross-promote slow-moving products by bundling them with fast-selling items. Also anticipate demand spikes using retail inventory systems to maximise your chances and plan markdowns in advance. Remember, 22 percent of consumers think the best markdowns are available the day after Christmas.
The Takeaway
Effective markdown strategies are key to balance inventory levels, drive sales, and maximize profit. By leveraging retail inventory systems, POS retail software, and data-driven insights, retailers can make smarter, more informed decisions that positively impact their bottom line.
The baseline to optimizing each of these strategies is for retailers to adopt a comprehensive, integrated approach to inventory management and markdown planning for maximum seasonal profitability.
To find out how Management One can help you optimize inventory planning with advanced tools for demand forecasting and sales optimization, get a free consultation here.