Sales Strategy
How to Build a Retail Markdown Strategy That Protects Profitability September 04, 2025 (0 comments)
Toronto, Ontario--A retail markdown strategy is a structured plan for reducing prices on specific products to clear end-of-life inventory while protecting profitability. According to an article by Retalon, markdowns should be an integral part of a product's overall lifecycle strategy, rather than an afterthought.
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Markdowns differ from promotions. Promotions are temporary and often aim to drive traffic or increase awareness, while markdowns serve a single purpose: to liquidate end-of-season stock while maintaining gross margins.
The article highlights that many retailers still treat markdowns as reactive measures, often applied late in the cycle, which reduces their effectiveness.
Five Key Markdown Strategies
Retalon's article notes five proven markdown approaches:
- Define KPIs and goals
Retailers must set clear, measurable KPIs before launching markdowns. These could range from hitting a zero-inventory date to tracking ROI impact. Monitoring before, during, and after markdowns allows adjustments when necessary.
- Adopt agile or automated markdowns
As per the article, online and offline retailers can use agile markdowns triggered by pre-set conditions such as sales velocity, competitor actions, or inventory thresholds. Automation ensures markdowns occur early enough to protect margins.
- Localize markdowns by store attributes
It is essential to tailor markdowns to specific geographic areas and demographics. As per an example mentioned in the article, demand for seasonal items like summer clothing peaks and fades at different times in Maine versus Arizona. Localized markdowns help preserve profits where demand remains strong.
- Pre-plan markdown schedules
Instead of steep, last-minute cuts, the article recommends pre-scheduling reductions in stages. The post cites the example of TVs, which could see smaller cuts mid-cycle and deeper discounts as new models arrive, while fast fashion needs a more compressed markdown window.
- Leverage alternative pricing strategies
Markdown doesn't always mean a flat price cut. The article notes options like bundle pricing, buy-one-get-one offers, or pairing accessories with core products. These alternatives can boost sell-through while limiting profit erosion.
Why Markdown Strategies Fail
Markdowns, as noted in the article, often fall short due to three main issues:
- Product-specific complexity: Managing markdowns SKU by SKU is impractical without advanced tools. General category-wide rules leave untapped profit opportunities.
- Context sensitivity: Timing, elasticity, and seasonality affect markdown success, and ignoring these factors leads to miscalculations.
- Lack of integration: Markdown planning must align with overall pricing and assortment strategies. Without this alignment, retailers risk cannibalization or inconsistent outcomes.
The Role of Data and AI
The article highlights that markdowns should not be decided based solely on past-season sales. Instead, effective strategies require data-driven insights into demand, lifecycle timing, and category interactions.
Leading retailers, Retalon notes, use AI-driven markdown optimization tools to automate decisions across thousands of SKUs, ensuring markdowns clear dead stock while maximizing gross margin.
Learn more in this article by Retalon.