Avoid Retail's Margin Trap: Five Tips for Minimizing Markdowns and Maximizing Sell-Through

What if fashion retailers could achieve full margin on every piece of merchandise? If every size, style, cut and color was sold at full price and on schedule? It's the Holy Grail of retail, but the reality is that many retailers are nowhere close to achieving this ideal of "intelligent commerce." However, they can get much closer to maximized sell-through by adhering to a handful of critical best practices and, in time for the holidays, achieve decreased markdowns, increased sales and a boost in profitability.

Once a markdown marathon begins and prices are slashed to sell, retailers' profit margins plunge at frightening speeds. Let's look at five ways retailers can avoid resorting to markdowns and maximize sell-through.

Track external exposure on products with the greatest revenue potential. Keeping track of all marketing efforts across all of your products can be nearly impossible. Consequently, the connection between marketing and merchandising teams can get lost, leading to overlooked website issues or missed promotional opportunities. If retailers can connect these dots, though, the payoff can be massive. For example, one fashion retailer that had $300,000 worth of inventory with previously no external inbound links (views) was able to quickly focus on driving traffic while avoiding profit killing markdowns by synching retail marketing promotions and product inventory.

Listen to the voice of your customer. Reviews and ratings are the voice of the shopper, and that feedback can bring invaluable insight into inventory errors and product misrepresentations online. Negative reviews can cause fewer purchases, therefore forcing markdowns.  Retailers should track ratings across entire product lines, monitor open-ended responses and reason codes. Identifying problems and outliers among reviews will uncover issues at the heart of decreased sell-through. A dress with a high rate of return can cost a retailer thousands of dollars in shipping and handling, but reviews and reason codes can help ascertain that the color was misrepresented in the website imagery, therefore making it "not as expected." Immediate corrective action based on this analysis can lead to a boost in sales and a decrease in returns and markdowns.

Be competitive with your pricing – from the beginning. Retail prices fluctuate on a daily (if not hourly) basis to stay afloat in this constantly expanding competitive landscape. Products may go to markdown simply because the price isn't aggressively set in comparison to other retailers. Maintaining a constant handle on competitive pricing can be an overwhelming task for all of your products, but retailers need to pinpoint where the biggest pricing disparities exist and help to prevent money from being left on the table by discounting too heavily. By adjusting prices to align with other retailers and your customer buying patterns, you can improve sales of products without resorting to multiple rounds of markdowns and, ultimately, liquidation.

Work with merchandising and content teams to extend internal exposure. Internal website exposure is just as important as external marketing efforts. Retailers need high quality, accurate product imagery and descriptions so that each item on the website is ready for purchase at any given time. If landing pages aren't correct and a retailer is unaware, issues may never be resolved, and down the markdown rabbit hole you go: you may have customers at your ‘doors,' but if they only find poorly organized or completely missing content for products you have in stock, you are likely to lose them. Connecting web analytics and inventory data helps detect discrepancies in order for merchandising and content teams to correct product imagery and landing pages. One retailer we work with discovered that nearly $500,000 worth of inventory had no visibility on its website, as hundreds of product images had never been posted. Monitoring these internal exposure issues will help retailers identify errors and alleviate their reliance on markdowns in order to sell those previously unseen items. 

Identify dual-merchandising opportunities and mis-categorization issues. Every shopper has his or her own way of describing and searching for products on and offline. Knowing the many variations of search terms customers use to browse a retail site will help dual-merchandise products for an optimized search environment. Mis-categorization issues or missed dual-merchandising opportunities may be at the root of low sales, and thus increased markdowns. One luxury retailer discovered nearly $1 million worth of overstocked inventory after taking a closer look at its on-site search and categorization. If customers can't find the products they are looking for, then they simply can't buy. Multi-merchandising strategies and re-categorization efforts can provide added exposure for products, resulting in fewer markdowns and increased sales across the board.

A zero-markdown paradise may never be the reality, but retailers can implement responsive, multi-dimensional strategies that optimize sell-through across an enterprise. Fashion retailers can take a breath, knowing they're armed with these five critical connections to minimize a future fraught with markdowns and missed numbers.

John Squire is president of North America, OrderDynamics.
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