Discounting Can Cost Retailers Millions — By Not Selling

By Bryan Pearson

Hemlines rise and fall fast, but when it comes to the shelf life of a discounted $500 skirt, the number of days can drag on — to 106, to be precise.

That’s how long it can take an online luxury retailer to sell a piece of women’s wear, even when discounted, according to an analysis of discounts among 114 luxury, premium and mass-market apparel and accessory retailers. Furthermore, when luxury items were marked down at a higher percentage (40-50%) than they took 19 days longer to sell than if marked down 30-40%.

That translated to millions in lost revenue among select women’s luxury goods in 2016, according to the research by Edited, a retail analytics company with offices in New York, London and Melbourne.

Mass-merchandise items, meanwhile, sell faster at discount, especially when marked down by less. Women’s wear products sold 11 days faster when first discounted from 30-40%, rather than 40-50%. The difference cost retailers millions in needless reductions, according to the research.

The same unusual trends occur across retail, from luxury apparel to kids’ clothes, but why? And what does it mean? According to Katie Smith, senior retail analyst at Edited, merchants fail to factor in several basic but highly relevant factors. “The simplest missteps are obvious even when looking at the surface of retail’s discounting woes,” she said.

The same applies to cereal and eggs — issues from shopper behavior to competitive distractions can blur pricing strategies.

Let’s look at factors that should influence effective markdown strategies, and how grocery chains can apply the same.

Timing, Popularity And Other Factors

A key benefit for retailers is they have scads of data to analyze, Smith said. But that also requires that they understand what they have and how to use it. Retailers still miscalculate how much to discount because they fail to include pertinent factors in the formula. Specifically: timing, product type, category and popularity.

There may also be a psychological effect at play — ­the shopper may perceive a larger discount to mean the product is undesirable.

“As consumers increasingly purchase goods online and expect to only buy goods when they’re ‘on sale,’ retailers must invest in technologies that give them a holistic view of the market, consumer demand and assortments,” she said in an email. “Today, retailers can use analysis tools to understand a trend’s demand before they even put a style into production, which helps buyers know how many orders to place.”

Further, she said, real-time analysis of competitors and other market segments helps merchandisers track a trend’s performance, spot saturation and clear stock before a decline.

Retailers need to become more adept at considering how different factors may affect performance. Take color as an example. A specific item may perform better in one color versus another, and the result may be very different strategies to ensure the most value is captured from the line. Smith said there may even be strong regional variations that can be addressed by monitoring the data.

“Missing out on sale season by so much as a week could be critical for a Go to the full article.

Source:: Business 2 Community

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