Retail Markdowns - part1

 

Markdowns are simply the difference between the original retail sales price and the actual selling price. In other words, comparing the price you put on the label versus what you actually ended up selling it for. When relating as a percentage, you take the markdown dollars and divide by sales.

 There are two types of markdowns you will take in your retail store. The first is the obvious one – a sale or event.

This is when you run a sale in your store like 25% of all shoes or Buy 1 Get 1 50% off. In these cases, you incur a markdown. You are reducing your price in order to entice customers to buy, thus creating some cash flow for your business.

The second type of markdown is a permanent price change. For example, let's say you bought a certain style of shoe in four colors. You put them all out on the sales floor at $100 each. But, two months later, you have sold out of two of the colors and some of the third one, but you have sold none of the fourth color. In this case, your customer is telling you they will not pay $100 for that color. So, you reduce the price in order to entice the customer to buy.

The best practice is to reduce the price only on the color that is not selling versus all of the styles. After all, why would you want to take a markdown on the shoes that are selling at full price?

Many customers will look at that sale price and now consider the color. In fact, a great practice is to do a Buy 1 Get 50% off of the non-selling color. Often times, a customer will consider the color if the price is right.

Markdowns are inevitable in retail. Typically, they come because a poor decision was made when buying.

Compiled in Editorial Board of Retailiran

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