Dealing with discounting – how to prepare for peak trading to ensure demand and margins are optimised

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By Anastasia Laska, VP Partner Alliances Revionics EMEA an Aptos Company

Laska: poor management of markdowns has two major drawbacks

For many retailers, markdowns are just another word for write off, when there is a better way to stop them happening in the first place.

There’s a lot to worry about during a pandemic so markdowns are probably the last thing retailers want to think about as they focus on getting stock onto the shelves, protecting staff and customers, and ramping up for Peak trading. But poor management of markdowns has two major drawbacks; it is giving away valuable margin and it is advertising poor waste management credentials to customers who are increasingly putting retailers under the spotlight on sustainability.

The first step is to find ways to stop inventory becoming a markdown liability. Retailers can use their data backed by artificial intelligence to tell them what their customers want across the product life cycle starting with price perception, all the way through their sensitivity to promotions, and then to final markdown. This insight releases opportunities at every stage and reduces dependence on markdowns because more inventory was sold at full or near full price.

What remains can then be handled more intelligently. For instance, markdowns can be strategically leveraged to transition seasonal merchandise to maximize profit and clear inventories effectively.

Top considerations for reassessing markdowns

  1. Use science as your trusted advisor

Retailers who take a more scientific approach to understand their market are more equipped to make proactive, strategic business decisions. Artificial Intelligence can now automate the vast volumes of data that humans cannot and apply the findings instantly, which will be critical as retailers need to be able to see quickly how products are progressing across the lifecycle.

  1. Stay calm. Be proactive. Test and Learn

Start looking at tools that will allow you better to understand your customers’ responses to your pricing decisions. These tools should enable localized markdowns responsive to local conditions, remove the emotion from key business decisions, and leverage science to start markdowns at the right time and depth.

  1. Hedge against risk

Even science gets confused when dealing with outliers such as covid-19. Better then to focus on your core assortment, and hard code your business rules as a guardrail against risk. Also, leverage software to codify your business rules. One potential recipe for success is using software that leverages science to simulate future outcomes based on historical data and automates safe and strategic pricing decisions at scale.

  1. Learn, markdown, and relearn

The world is complicated, and decisions are ever more critical. Not to be overly dramatic, but what was once your core assortment is up for debate, and you need to be comfortable with this. For the retailers who managed to remain open, when you walk your stores, have you noticed how some shelves are bare-bones empty while others have products that are collecting dust? This is a signal to all retailers that shopper preferences have changed, and essential things have become non-essential and vice versa.

This is not a recommendation to slash and burn your prices. Instead, seek to partner with a retail pricing expert to conduct an SKU rationalization analysis to identify end-of-life products that are ideal markdown candidates to free up some space to relearn what matters most to your customers.

Retailers who consider the above and proactively re-evaluate their markdown effectiveness with the right investments today will be strongly positioned to succeed in the years to come. Revionics can support retailers on this journey with numerous advanced markdown analytics and solutions and all of the retail depth and expertise to ensure that your markdowns become best-in-class.