Similar to discounts and promotions, retail markdowns, as the name suggests, entail lowering the price of a given item. But unlike discounts and promotions, markdowns are permanent price changes. They don’t come attached to specific criteria. For instance, college students or senior citizens might qualify for certain discounts. Or stores might run holiday sales. Markdowns, on the other hand, are simply price reductions to encourage more sales of an item.
Most markdowns are the result of products not selling well, so it’s important for retailers to find ways to minimize their losses. Unfortunately, U.S. retailers alone lost about $300 billion to markdowns in 2018. In order to not add to that number, businesses need to plan ahead and determine a detailed and consistent policy for store markdowns. Here are 10 retail markdown strategies that all SMBs should consider.
1. Offer a Gift with the Purchase of a Particular Item
Gift-with-purchases improve the customer experience and are a great way to incentivize a purchase. But you can’t simply give away any item. It’s important to calculate the inventory cost of the gift. Figure out the percentage of revenue lost with each gift-with-purchase.
For instance, you’re trying to sell a pair of boots that you purchased for $50 at a retail price of $100 for a 100% markup. But you’re offering a pair of wool socks with each purchase. The socks cost you $10, reducing your profit to $40 per sale. The markup is now just 80%. Analyze if this is affordable for your store. An 80% markup might sound like a lot, but for some retailers, their overhead costs require higher markups. Just be sure that your business can afford the loss.
2. Set Up a BOGO Deal
Everyone likes a buy-one-get-one-free deal! Almost all of us have been swayed into purchasing an item just because we get a second one for free. It’s fun and exciting and you feel like you’ve cracked the system. After all, offering items for free might not have much value for you but they hold a LOT of value to your customers.
Determine which products you’ll offer for a BOGO deal and set the pricing appropriately. You might set the price slightly higher than it had been prior to the deal. It’s unlikely to deter your shoppers from making the purchase. Buy-one-get-one deals can also apply to a number of different items, but they are particularly well-suited for products with a higher markup. Giving away a second will not eat into your business’s margins as easily.
3. Use Flexible Pricing for Your eCommerce Store
Allowing for some wiggle room in your pricing can keep your products more competitive online. With Amazon and other eCommerce sites that thrive off of cheap prices, it’s important to find ways to compete.
Price matching is one way of keeping up with the big box e-tailers. Just be careful not to try to compete where you can’t. Going too low on price matching can mean big losses in the long run.
Another way to compete online is to change your prices when the supply elsewhere goes down. If you sell niche items that are carried by only a few other retailers and notice that one or more of them are sold out, raise your prices to match the lessened supply.
Adding some flexibility to your prices is a great way to keep up with the market and maximize your profit without simply relying on full-scale markdowns.
4. Take Better Inventory to Avoid Markdowns
Most retailers who marked down their prices did so because of mismanaged inventory.
Optimize your ordering. Shelf and storage space are often times a premium for retail business owners. You can’t afford to over order and have dead stock stuck in your store for months. Doing so will leave you forced to come up with ways to move the inventory, usually by marking down the prices. Be preventative and avoid this situation.
Follow trends. Know what products move and what rates. Anticipate seasonal trends by looking at years’ past. Your ordering will most likely be very different in July than it is in November. But you must know exactly how it will be different.
Follow your inventory analysis suggestions. Your retail POS system can give you actionable advice on how to stock and price items. See what your real money makers are and what might be better off coming off the shelves.
To learn more about how your point of sale can help your retail markdown strategy give us a call at KORONA. We’ll show you how to navigate the system so that your inventory is in order and you can avoid having to deal with markdowns altogether!