THINGS TO LEARN FROM YOUR MARKED DOWN MERCHANDISE
Do your markdown racks consist of broken lots with only a few sizes or colors left? Congratulations! These items were successfully planned for. That means good sales planning, appropriate initial markup, good promotion and a buyer who knows his/her customers. Good job! In retail, some markdowns are unavoidable. You know something will always be left at the end of the season and you are right to move it out as quickly as possible to make way for the newest exciting merchandise, whatever that may be.
However, if you see a fairly complete lot of merchandise, short-sleeved lace blouses for example, with most sizes still available, you must accept the fact that you made a mistake. You purchased something your customers did not want or your initial markup was too high. Generally, even if the line was under promoted, if it was an item your customers wanted and correctly priced, it will move fairly well. However, the short sleeved, fuchsia lace blouse that is still available in most every size at the end of July was the buyer's mistake. If you honestly cannot determine why an item did not sell, include a survey concerning that item in your next newsletter or ask the next 100 customers what they do or do not like about an item. Don't take insult at what they tell you and use this as an opportunity to learn more about your customers.
Now, take a step back from your markdowns. Do you see a predominant color? This was a color that didn't sell to your customers. Why? You failed to understand what your customers want. Always attempt to determine what is wrong with left-over merchandise so that you can avoid a repeat of the same mistake.
Look at the details. Does a particular style appear in markdowns over and over? What about sizes? Do you always have a huge selection of larger or smaller sizes left? To avoid excess markdowns, adjust your buying up front. If more plus-size customers make up your loyal customer base, it makes sense to have sufficient styles, colors and sizes for them and to trim the smaller sizes. Become aware of what sells and what stays.
What about those circumstances out of your control? Are you bringing out fall merchandise and cursing the weatherman for another day of cool rain and wondering if the swimsuit collection you got such a great deal on will move before school starts? If your business is dependent on a particular weather performance for success and Mother Nature refused to cooperate, you have choices. Items may be marked down until they are gone, donated or stored for next year. Generally we do not recommend storing merchandise. Storing merchandise does not stimulate your cash flow and actually decreases cash flow by increasing both property taxes, if applicable and property insurance. In addition, stored merchandise generates a storage expense even if it is stored in the backroom. Consider, you didn't include the backroom in your store to be idle space. Are you using it wisely?
Plus, your customers, at least some of them, will remember fashion items that did not sell and share that information with others. By the time that story is re-told six or seven times, you may be knows as the store who "always has last year's stuff" or last decade's stuff-whether it's true or not. Plus fashion items usually change dramatically from year to year. A classic item carefully stored may escape customer notice when returning to the sales floor, but if it's so classic it never goes out of the store, it is a cash hog and eating away at your profits little by little. Stored merchandise generally will incur extra costs for cleaning and repairs also. When your relic does finally sell, can you still recover all the cost associated with the item and generate an adequate profit?
The next thing to think about as your study your markdown/clearance merchandise is your store's reputation. Here's a sad fact: 95% of your customers will tell at least one other person about something negative in your store (April 15, 2013 by MarketingCharts staff). What's negative? "The sales staff was too busy to help me" or "It was so poorly made it fell apart the first time I used/wore it" are certainly unflattering comments, but how about "Wait a little while and it will go on sale a lot cheaper!" Do you really want your customers to take away that idea?
Finally, when looking at your markdowns (remember these are the items that you thought you would sell this season, not specialty items brought in for a particular event/sale), be honest with yourself. You, the owner and you, the buyer, need to look at and own your mistakes. If you aren't honest with yourself, what will prevent these mistakes from making a rerun performance? Don't be forced to markdown your profits to move stuff out the door just to get barely enough cash to stay in business.
The best way to control markdowns is by using an Open-To-Buy service.