The timing and frequency of markdowns during a selling season, used to manage inventory levels, optimise sell-through rates, and maximise gross margin.
What is Markdown Cadence?
Markdown Cadence is the frequency, timing, and depth at which retailers apply price reductions to merchandise. It involves strategically timing and adjusting the discount percentage to optimise sales and inventory management. The goal is to achieve maximum impact on sales while preserving profitability. Retailers use historical data and demand patterns to determine the most effective markdown strategy.
How Markdown Cadence works
- Analyse Historical Data: Retailers start by analysing historical sales data, demand patterns, and product performance to identify opportunities for markdowns. They consider factors such as seasonal trends, product lifecycles, and customer preferences.
- Set Objectives: The retailer defines the objectives for the markdown cadence, such as boosting sales, reducing excess inventory, or increasing profit margins. The strategy may differ based on the category, product, or time of the year.
- Segment Merchandise: Products are categorised based on their demand, profitability, and inventory levels. High-demand items with limited stock may not require aggressive markdowns, while slow-moving items might need deeper discounts.
- Determine Timing: Retailers decide when to start the markdown process based on factors like seasonality, product lifecycle, and inventory levels. They aim to strike a balance between selling at full price and avoiding excessive markdowns.
- Adjust Discount Levels: The markdown cadence involves adjusting the discount levels over time. Retailers may start with moderate discounts and increase them gradually if products don't sell as expected. The goal is to find the right balance between driving sales and maintaining profitability.
- Promote Markdowns: Retailers communicate markdowns to customers through various channels, such as in-store signage, email newsletters, or social media. Effective promotion helps attract shoppers and drive sales.
- Monitor Performance: Throughout the markdown cadence, retailers closely monitor the performance of discounted items. They analyse sales, inventory levels, and overall profitability to assess the effectiveness of the strategy.
- Optimise and Refine: Based on performance analysis, retailers continuously optimise and refine their markdown cadence. They may adjust timing, discount levels, or product segmentation to improve results.
- End-of-Season Clearance: Toward the end of a season or product lifecycle, retailers may conduct more aggressive clearance markdowns to clear remaining inventory and make way for new merchandise.
By strategically implementing a markdown cadence, retailers can effectively manage inventory, maintain customer interest, and achieve their business objectives while ensuring profitability.
Pros of Markdown Cadence
- Optimised Inventory Management: A well-executed markdown cadence helps retailers effectively manage their inventory levels. By identifying and addressing slow-moving or excess stock, retailers can clear out older merchandise, make space for new products, and avoid overstock situations, leading to improved inventory turnover and reduced carrying costs.
- Maximised Sales and Profitability: With a carefully planned markdown cadence, retailers can strategically offer discounts to attract customers and increase sales. By gradually adjusting discount levels based on demand and performance, retailers can optimise profitability. This approach encourages customers to make purchases sooner rather than waiting for deeper discounts, resulting in better revenue generation.
- Enhanced Customer Experience: Offering markdowns in a planned and strategic manner creates a positive customer experience. Customers appreciate discounts and promotions that are well-timed and targeted, making them feel valued and more likely to return for future purchases. This fosters loyalty and builds a stronger relationship between the retailer and its customers.
Cons of Markdown Cadence
- Profit Impact: While a markdown cadence can optimise profitability in many cases, there is a risk of reducing profit margins if the markdowns are too frequent or too deep. Over-reliance on markdowns to drive sales may erode the product's perceived value, leading to lower overall revenue.
- Complexity and Planning: Developing and managing a successful markdown cadence requires significant planning, analysis, and coordination across different departments within a retail organisation. This can be time-consuming and complex, especially for retailers with large product assortments or multiple store locations.
- Inventory Discrepancies: A markdown cadence may lead to inventory discrepancies, particularly when markdowns are not accurately synchronised across all channels (e.g., online and in-store). This can create confusion for customers and affect their shopping experience, leading to potential dissatisfaction.
Below you will find answers to common questions
How often should we implement markdowns for seasonal products to optimise sales without compromising profitability?
The frequency of markdowns for seasonal products depends on various factors, including product demand, inventory levels, and market conditions. Implementing a well-planned markdown cadence can strike a balance between driving sales and maintaining profit margins. For example, for fast-selling seasonal items, it may be beneficial to start with small markdowns early in the season and gradually increase discounts as the season progresses to avoid excessive stock levels. On the other hand, slower-moving seasonal items may require more frequent markdowns to clear inventory and make room for new arrivals.
How can we ensure that our markdown cadence is consistent across all sales channels (online and in-store) to provide a seamless shopping experience for customers?
Ensuring a consistent markdown cadence across all sales channels is crucial to maintaining a positive customer experience. Retailers can achieve this by adopting integrated inventory management systems that synchronise data across online and physical stores. This enables real-time updates on pricing and inventory levels, ensuring that customers receive the same markdown offers regardless of the channel they use. Regular communication and coordination between the online and in-store teams are also essential to align markdown strategies and prevent any discrepancies in pricing or promotion duration. By leveraging technology and fostering cross-functional collaboration, retailers can deliver a seamless and unified shopping experience to their customers.