Best Practices for Retail Markdowns and Sales

Thursday, July 16, 2020

They say August is the Sunday of summer. We’re technically still in the thick of the season, and yet fall’s presence is looming. With that comes the...dreaded? Exhilarating? Exhausting? End-of-season sales. Whether you host one to quickly liquidate summer-specific inventory, fix an overbuying mistake, empty your seasonal store before closing or just generate foot or online traffic, August sales are all but a given in the retail world.

Before you go slashing prices and re-stickering everything, consider the goals of your markdowns, as well as the operations involved. Here are a few best practices for retail discounting and seasonal sales.

Define whether you want to mark down a product or host a promotion.
The difference is critical for set-up and reporting purposes. In this case, a markdown is a permanent price change: Your shirt’s original price was $89, and you’re going to mark it down to $49 until the last of them sells. A promotion is a temporary discount placed on anything from a specific item or category to an entire site or store.

Promotions are great for things like Black Friday or a Labor Day Weekend sale—events that drive traffic but have an expiration. Heartland Retail’s point of sale allows you to set start and end dates, so the promotion will automatically expire on the latter, preventing you from having to perform multiple price changes on the same inventory.

Create conditional discounts.
In addition to start and end dates, point of sale software should offer the functionality to create discounts around particular conditions. You may want to mark down your entire store for a holiday, but not at one blanket discount. Nothing good can come out of marking down a pillow with a high-sell through at the same discount as a collection of slow-moving candles you’ve been trying to sell for three months. Conditional discounting allows you to target specific brands, vendors, categories, seasons and more. You can even set conditions based on store location (perhaps your Nantucket store is hosting a sale because it’s about to close for the winter, but you want your Boston store to be selling business as usual) and total ticket spend (take 20% off when you spend $200).

Explain the discount.
In the case of an End of Summer Sale, the promotion speaks for itself. But for discounts unrelated to an event, it’s important to define the why; this could include damaged items, online returns, blanket discount on previous seasons or special promotion for a single highlighted vendor or category. Otherwise, you run the risk of training your customers to expect markdowns and not really believe the original sticker price, thus always waiting for a sale before buying.

Fail fast.
Your first markdown is the cheapest. Agile retailers are laser-focused on their sell-through data, and when something isn’t moving, they recognize their mistake and mark it down quickly. The saddest thing to see in a store is a wounded markdown—the $175 price tag that was crossed off to $125...then $99....then $59…don’t be so obsessed with your margin that you’re too timid in initial markdowns; get the cash back in your hands and reinvested in inventory that will perform. Think of it like real estate: The longer a property sits on the market and the more price reductions it sees, the more wary buyers are.

Keep sale items at the back of the store.
You don’t have to hide the fact that you’re holding a sale—feel free to make that loud and clear from the window—but you still want to tempt your customers into purchasing new arrivals and full-price items. Forcing them to walk through such on their way to a discounted section can do just that.

Avoid advertising percentage off.
No one wants to be forced to do math while shopping; make it simple for customers by stickering items with the new price, even if temporary. While this adds an extra layer of manual work, it’s proven to increase conversion. Don’t bother re-stickering with a new barcode; your POS is the source of truth and once the item is scanned at checkout, the discount will be applied automatically. Instead, always keep a supply of removable labels, which you can easily run through your printer, on hand.

Keep it clear.
Heartland Retail can support complex promotion rules, so if you’re struggling to set them up within the POS, it’s likely too complex of a promotion for the customer to grasp. If they’re confused, they’re going to give up or try to swindle your store associates into honoring an exception because it wasn’t clearly advertised.

Plan ahead.
As you look ahead and create your next open to buy, it’s important to determine how many markdowns you can afford to take throughout the year. Markdowns are every bit as much an expense as your payroll, advertising or occupancy costs, so they’re a part of your budget. If you know, for instance, that 20% is a profitable markdown rate for your store, and your store does $2 million annually, you have a $400,000 budget for markdowns. Don’t blow through that in the first half of the year and fail to leave room for a, say, Black Friday Weekend sale that your customers have come to expect, or that you rely on to move out-of-season items before they become too stale.