Markdown Optimization Demands Precision – Are Fashion Retailers Ready To Drive Results?

Markdown Optimization Demands Precision – Are Fashion Retailers Ready To Drive Results?

The recent years have seen a growth of fashion retailers utilizing various forms of Markdown Optimization (MDO) and retail analytics tactics to make some sense of and generate more results during the SALE periods. But when retailers are faced with tough competition, combined with the slow economy – they tend to sideline their MDO tools and revert to gut-feel-based broad promotional approaches. But these unplanned tactics are not predictable and can work either way. With accurate use of MDO techniques and precise application round the year, retailers can give way to optimized SALE as well as SEASON cycles that generate profits and enable hyper-targeting as well.

Retailers must first understand that markdown optimization is not a one-off Band-Aid activity that should be done right before the SALE season starts to get better results when the basic decision-making premise and processes are faulty. MDO plans should be a part of the overall business strategy, pre-season as well as in-season. True markdown optimization can be achieved with a change in organizational attitude. Instead of supporting old habits – where retailers made decisions for all the styles, all the stores, and all the customers based on guess-work – and moving towards exploiting the tool to integrate all the processes and data, to see the bigger picture, and utilizing technology to forecast the trends and predict purchase patterns based on localized demand is the holy grail for markdown success.

Fast-fashion retailers such as Zara and H&M are constantly changing their assortments and have few in-season promotions. This creates a bigger challenge as there are no historical price points for various articles of unsold inventory. Till 2007, Zara was using manual decision-making system for markdowns, but then it implemented a forecasting and optimization solution that increased the clearance revenues by about 6% and more over the years.

In the world of omni-channel marketing, MDO insights have become even more potent. For instance, ship-from-store trend is gaining popularity and many big retailers like Macy’s and Nordstrom are utilizing it to optimize inventory management; but some other tech-forward retailers are going so far as fulfilling orders from the stores least likely to sell without deeper markdowns. The tie-in of MDO with inventory management and supply chain is essential, and the next step is to align MDO insights with inventory distribution across the stores. In this way, MDO will not only be about the SALE period, but will become an essential part of decision-making throughout the product lifecycle and will impact product assortment, pricing, margins, order-fulfillment, and placement.


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