How do you manage inventory and markdowns for your retail assortments?

Factors such as turn and forecasting, can be affected by the exposure of a product, seasonality, and/or its everyday retail price.

Markdown management is a crucial part of the overall product life cycle management in retail. It plays an important role in keeping the inventory levels under check which otherwise can create a lot of imbalance in revenue & profitability targets for a retailer. A well defined retail assortment strategy backed by an efficient data enabled monitoring of it's sale's performance over the budgeted time period can help a retailer in building and/or fine-tuning effective product level markdowns which in-turn can help in achieving the required sell-throughs and margin targets.

As a food buyer, I focus more on the inventory days on hand and match to the Item's shelf life. If an item is only good for 14 days, it does not benefit me to have more than 7 days of inventory on that item anywhere. This is where always making sure the most accurate forecast is in the system for your items. This improves your Item's turns and significantly reduces markdowns.

To effectively manage inventory and markdowns in retail assortments: Demand Forecasting: Use historical data and predictive analytics to forecast demand accurately. Inventory Segmentation: Categorize inventory based on demand patterns, seasonality, and product lifecycle. Dynamic Pricing Strategies: Implement dynamic pricing models based on real-time demand, enabling flexible pricing adjustments and minimizing the need for excessive markdowns. Inventory Turnover Analysis: Regularly analyze inventory turnover rates to identify slow-moving or obsolete stock. Collaboration with Suppliers: Work closely with suppliers to negotiate favorable terms, adjust order quantities, and manage inventory lead times.

Efficiently manage inventory by leveraging data analytics for accurate demand forecasting, ensuring optimal stock levels. Strategically implement markdowns using dynamic pricing strategies based on real-time insights to optimize sales and minimize surplus inventory. The key? Agile inventory management and smart markdown tactics for a profitable retail assortment.

Localized inventory strategies are a great way to get the right product to the right customers at the right time. Some regions will need rain gear sooner than others, while others may have a longer selling window on sandals. Understanding the demand characteristics of your individual markets will help you best manage inventory flow not only to reduce markdowns, but also to capitalize on early opportunities for sales when seasonal markets transition earlier or later than others. This isn’t always an easy task though, localized flow of goods requires close collaboration with your vendor partners to manage more nuanced production schedules, importing timelines, and sometimes a different approach to packaging goods by store before shipment.

Have a markdown discussion with your suppliers when you're making a buying decision. If they are going to show you new innovation that they want you to try, ask them about marketing and markdown help, in advance, if the launch is not a success. Letting them know that if it is a success then you will likely have more confidence in teaming up with them for additional innovation in the future.

Markdown management and minimization starts at the beginning of the buying process by incorporating initial markup, quantities purchased and delivery date established. Using historical sales and markdown actuals for like product categories and brands as a guideline as well as utilizing the tools (markdown optimization programs, projection tools, etc) available put a merchant and planning team in the best position for maximum profitability.

Markdown management has been critical to fiscal performance at every retailer I have worked for and every category I've been in - luxury, mass specialty, startup and flash. There have been nuances in strategy and execution but the guiding principle has always been the same - give the customer the best possible product with a pricing and markdown strategy that delivers the best possible margin. And, every misstep is an opportunity to learn and improve next time. Win or learn!

A great way to reduce markdowns AND increase turns is to partner with your supply chain on getting as much fat out of your leadtimes as possible to ensure ability to order fewer units but more frequently. You say ordering fewer units will cost more? Not necessarily once you compare a potential cost of good premium to what the markdown would cost plus you get the benefit of delivering new goods more frequently to hopefully increase traffic.