Retailers Leaving Money on the Table By Offering the Wrong Markdowns

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Retailers Leaving Money on the Table By Offering the Wrong Markdowns

EDITED, the world's biggest source of real-time data for brands and retailers, has released a comprehensive discount analysis of luxury, premium and mass market men's, women's and children's U.S. apparel, accessory and footwear brands from 114 online retailers from 2016. EDITED found that in 2016 retailers missed $9.24 million in revenue by miscalculating the optimal percentile in which to discount items.

EDITED's platform analyzed when the same products across retailers sold more slowly when discounted at a different percentile to identify the lost revenue amount. The women's luxury goods category incurred the biggest loss, accounting for almost half ($4.3 million) of the total revenue missed last year. Women's luxury goods were discounted at 40 percent to 50 percent initially compared to 30 percent to 40 percent, leaving products on shelves for 19 days longer. Men's wear luxury goods lost more than $687,000 in revenue when discounted at 40 percent 50 percent versus 30 percent to 40 percent, with products not selling for 11 extra days.

"Discounting tends to happen once retailers have worked out consumer demand isn't high enough, but our analysis proves that an aggressive price reduction is not always the best approach," said Katie Smith, senior retail analyst at EDITED. "The extent of how much a retailer discounts its products depends on a multitude of factors - including timing, product type, category and popularity. Having this level of granularity can quite literally mean that a retailer adds - or loses out - on hundreds of thousands of dollars per year in revenue."

Additional findings from EDITED's retail discount analysis:
  • Premium goods discounts are a mixed bag: When women's premium goods were discounted at 20 percent to 30 percent off, retailers lost $1.69 million, with products not selling for an extra 16 days. However, men's premium products did not experience a significant revenue loss, indicating a more aligned discounting strategy with consumer demand.
  • Mass market showed the best discount to sales approach: For women's wear, products sold 11 days' faster when first discounted at 30 percent to 40 percent rather than 40 percent to 50 percent. Retailers lost more than $1.59 million in needless reductions with this approach. Meanwhile, mass-market men's wear retailers would have pocketed more than $517,000 in sales had they chosen to discount at 20 percent to 30 percent rather than 30 percent to 40 percent.
  • Luxury products stay in stock: Out of all the categories, luxury items take the longest to sell even when discounted, with men's wear luxury items sitting in inventory for more than three months on average (about 112 days) followed by women's wear (106 days) and children's (70 days).
  • Mass-market products sell quickest after discounts: Discounted mass-market children's wear took only 43 days on average to sell, compared to 80 days for premium products. Mass-market women's wear took 63 days compared to 76 days for premium items. Finally, mass-market and premium men's wear took 67 days and 80 days to sell, respectively.
EDITED's platform includes a discounting tool that helps retailers better understand and compare its discounts with its competitors' first, current and deepest markdowns in real-time. Using these insights, retailers can develop a discount strategy to optimize its margins.

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