The process of selling slow-moving or end-of-season inventory at discounted prices to make room for new merchandise.
What is Clearance?
Clearance is the process of selling off outdated, slow-moving, or overstocked merchandise at discounted prices to make room for new inventory. Its purpose is to reduce inventory levels, recoup costs, and create space for fresh products. Clearance sales are typically timed to coincide with the end of a season or holiday periods, and they are promoted through various marketing channels. Customers benefit from discounted prices, while retailers can free up capital and maintain a refreshed assortment.
How Clearance works
- Identification of clearance items: Retailers identify products that are outdated, slow-moving, or overstocked and are unlikely to sell at regular prices. These items are marked for clearance.
- Price reduction: The prices of clearance items are significantly reduced to attract customers. The discounts are often deeper compared to regular sales promotions to encourage quick sales.
- Promotions and marketing: Clearance sales are promoted through various channels such as store signage, advertisements, email campaigns, and social media. The goal is to create awareness and generate customer interest in the discounted products.
- Inventory management: Clearance sales help retailers manage their inventory by clearing out unsold or excess items. This allows them to make space for new products and maintain a balanced assortment.
- Limited availability: Clearance items are usually available in limited quantities and sizes. This creates a sense of urgency for customers to make a purchase before the stock runs out.
- Clearance sections or events: Retailers may dedicate a specific section in their store or designate a clearance event where all the discounted items are displayed together, making it easier for customers to browse and find deals.
- Final sale policy: Clearance items are often marked as "final sale," meaning they cannot be returned or exchanged. This policy helps protect the retailer's profit margins on heavily discounted merchandise.
- Clearance duration: Clearance sales typically have a set duration, either for a specific time period or until the clearance inventory is sold out.
By offering discounted prices and promoting clearance sales, retailers can effectively clear out old inventory, attract customers looking for deals, and generate revenue while making way for new merchandise.
Pros of Clearance
- Inventory clearance: Clearance sales help retailers clear out outdated, slow-moving, or excess inventory. By offering discounted prices, they can quickly sell off these items and make space for new merchandise. This helps prevent inventory buildup and ensures a fresh and updated product assortment.
- Revenue generation: Clearance sales attract price-sensitive customers who are looking for deals and discounts. By offering discounted prices on clearance items, retailers can generate additional revenue that they might not have otherwise obtained from these products. It allows them to recover some of the investment made in those items and improve overall profitability.
- Customer attraction and loyalty: Clearance sales are popular among bargain hunters who actively seek out discounted products. By offering attractive deals and promotions, retailers can attract new customers to their stores or website. Additionally, clearance sales provide an opportunity to engage with existing customers, reward their loyalty, and encourage repeat purchases.
Cons of Clearance
- Margin erosion: Clearance sales often involve significant discounts on merchandise, which can result in lower profit margins for retailers. Selling products at reduced prices may not cover the original cost of goods, leading to margin erosion and reduced profitability.
- Brand perception: Continuous or excessive clearance sales can create a perception that the retailer regularly has excess inventory or struggles to sell products at full price. This may negatively impact the brand image and devalue the perceived quality or value of the products being offered.
- Impact on regular-priced sales: Customers may delay their purchases, anticipating future clearance sales. This can negatively impact regular-priced sales as customers become conditioned to wait for discounted prices rather than making immediate purchases at full price. It can disrupt the normal sales cycle and potentially impact revenue streams.
Below you will find answers to common questions
How often should I hold clearance sales?
The frequency of clearance sales can vary depending on factors such as inventory turnover, seasonal trends, and market demand. It's important to strike a balance between clearing excess inventory and maintaining a healthy profit margin. As a general guideline, retailers often hold clearance sales at the end of each season or when they need to make room for new merchandise.
How should I determine the discount percentage for clearance items?
Setting the right discount percentage requires careful consideration. Retailers typically assess factors such as the age of the inventory, its condition, and its demand in the market. Additionally, retailers may analyse historical sales data, competitor pricing, and customer preferences to determine an appropriate discount percentage. It's important to find a balance that attracts customers while still generating a reasonable profit margin.