How to Create a Modern Markdown Strategy

With the many challenges fashion retailers must contend with today — fast or even instant fashion, the proliferation of discounters, and Amazon.com's growing apparel footprint — it’s more imperative than ever that you execute an optimized markdown strategy. Trends change at the pace of social media, and even your most well-planned assortments are susceptible to major shifts in shopper behavior, putting your bottom-line targets in jeopardy.

In short, mindless markdowns won’t cut it in today’s retail environment, where shoppers are no longer brand loyal, but rather price loyal. It’s a formula for stagnant sales growth, shrinking profit margins and diminishing brand value. Fashion merchandisers think about trends in color, design, etc. — the art of their practice as it applies to selling through their inventory. But how do you know when to take that first markdown? And at the moment you want to move forward with it, how can you know whether you’ve got it right or wrong?

Fortunately, advanced markdown solutions are available to monitor complex and evolving demand signals in real time to rescue you from whatever missed predictions may have entered the mix. Leveraging machine learning science, you can systematically monitor your assortment’s inventory levels, and identify shoppers’ price sensitivities along with other behaviors. The science will recommend how long to keep selling at full price and when it’s time to take that first markdown. Solutions are even powerful enough to predict with startling accuracy what's likely to happen in the future.

And because price and inventory are so intimately entwined, an optimized markdown approach forecasts inventory depletion as a function of time and price, delivering discount recommendations that addresses the product across its entire life cycle, including the timing and depth of each markdown to ensure you sell through your inventory and maximize margins. The discount recommendations can be as surgical as the SKU/store level, or they can be kept at a style or style/color level to align with your business goals.

Taking a holistic approach enables retailers to automate markdowns so you know where, when and how much of a discount to take to clear inventory on schedule for every item.

At a recent industry event, I heard Sir Stuart Rose, former CEO of Marks & Spencer, reflect on why he has so loved his career in retail. He talked about the excitement of being in an industry where change moves at a breathtaking pace. That pace will only continue to accelerate. For retailers to thrive, they must embrace the concept of keeping pace in this incredibly dynamic environment. By combining the art of their profession with contemporary data analytics and science, retailers can leverage advanced markdown solutions that decipher influencers and the discounts that shape behavior.

These solutions use advanced AI and machine learning. They adjust with market shifts, letting the retailer stay on top of the latest trends, including new item sales. A proactive approach analyzes the product throughout its available life and compares it to expected results. It puts a plan together and dynamically adjusts it throughout the entire life cycle based on its own sales, seasonality and other trends generated from products with similar attributes. These proactive insights enable the retailer to predict and manage towards the desired outcomes, delivering bottom-line business impact while streamlining clearance flows.

Cheryl Sullivan is the chief marketing and strategy officer for Revionics, a price optimization solutions provider.