Markdowns: How Much is Too Much?

Markdowns: How Much is Too Much?

It’s a tale as old as time….the story of the consumer and the markdown. It is a love story so great that it has its own holiday in its honor- the infamous “Black Friday.” In addition, consumers have become so accustomed to not even considering a purchase unless it has a discount. So how do retailers navigate such a minefield of human behavior and psychology? They do their research and hope for the best.

Too Much of a Good Thing?

The recession put a huge strain on both retailer and shopper. Sales were the only way to lure cash-strapped customers into even more cash-strapped stores. Now that the economy has since recovered for the most part, are such marketing tactics necessary? For stores repeated, steep discounts can damage profit margins in the long-run. For brands the sacrifice can come in both reduced margins and loss of desirable brand image, reports Business of Fashion.

While stores and brands are trying to figure out the sweet spot in terms of discounting, they have changed the method in which they do so. Many stores loved having cross-promotions. A department would be 20% off and then there’s a $10 off coupon a purchase of $50 or more, but it excludes certain items. It became that calculating the actual value and cost of goods was such a headache. And, it’s Marketing 101 that if you confuse a potential customer they walk away.

Sourcing Journal Online reported that retailers noticed that overall this confusion ended in reduced sales in their stores and online. They furthered this sentiment with a quote from Marvin Ellison CEO and chairman of J.C. Penney,

“We’ve conducted quite a few focus groups, and we spent a lot of [time] understanding what types of promotional cadence and marketing handle resonate with customers. And what we found out in a lot of cases is that we were just overly confusing and overly complicating what price and value really stood for.”

It’s a Delicate “Art” 

This is not to say that retailers should do away with sales or risk financial ruin. It is just that it really is a nuanced practice that has to pertain to the particular store, brand and target customer. An example would be to look at the way in which these different brands approach discounting. Balenciaga is selective about which products it puts on sales. Their Bazar Python Shopper XL was reduced by 50 percent online, while Graffiti and leather shoppers remain at full-price. For the most part, performance, stock and whether something is considered a “staple” is a force behind the choice to put something on sale. By contrast, Gucci never has any item go on sale, yet they still have product that sells out. This is a risky move, but by knowing their brand position and their customer they are able to take it without repercussions.

Markdowns are beneficial for both retailer and shopper when done correctly for them and their target customer. Across the board the ultimate goal is to keep product at full price as long as possible. But in the cases of overstock, underperforming items and simply luring a shopper in, discounts can boost overall sales. By being mindful to the market and understanding the art of the “deal,” both parties can benefit.

Author:  Christine Duff

Christine wants to live in a world filled with cutting edge fashion, beautiful words and and an endless supply of leather jackets and boots. A product development grad of FIDM, she was the Editor-in-Chief of MODE Magazine where she reignited her love of storytelling. She has diverse experience within the industry with trend research, art direction and styling editorial spreads. She gained her most notable experience working in Los Angeles at the satellite operation for GQ and Vogue Thailand. Christine is passionate about social science and the role it plays in the consumer goods industry and apparel in particular.

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