Markdown Optimization: Why You Need to Leverage Data-Science and AI Capabilities to Grow Cash Margin
A Terminal Problem
Planning markdown successfully is critical for retailers to be able to make space for new styles on the shop floor and online, and to release cash to procure new lines and repeat best sellers. Accumulating old, out-of-season, and fragmented inventory throughout the store chain and distribution centers creates a financial and operational nightmare unless properly addressed in season.
Yet many retailers are still making pricing decisions based on gut instinct and repeated ways of working instead of complementing this business intelligence with well-informed, data analytics-led decision making. If “change begets change” then we can conclude that the same kinds of decision-making are unlikely to yield any meaningful results.
Bottom Line Sense
Markdown optimization is a straightforward way to consistently generate double-digit cash margin improvements whilst still clearing through stock at the right pace. Through our science-driven Markdown Optimisation Tool and Service using TPC’s Markdown Intelligence (MDi), we typically observe cash margin improvements ranging from +12.1% to +17.9% per markdown event versus instinct-based pricing whilst also maintaining or improving end-of-season sell-through by up to +2pp.
Where a business’ markdown mix accounts for a significant portion of the year’s turnover, this equates to a massive improvement in cash through the door while reducing terminal stock liabilities. Money left on the table…
Getting it Right
MDi’s proprietary machine learning models are applied to each retailers’ own data which allows us to provide a tailored approach to each business’ product and customer demand profiles.
Once the model is updated with this data, MDi delivers optimized prices through either an on-premise Tool or our Markdown Optimisation Service, where prices are delivered to merchandising teams’ inboxes on a weekly or daily basis. Whether it is through a service or a tool, this data-led approach frees up merchandisers’ time to focus on product nuances and outliers, rather than coming up with prices from scratch, saving up to 70% of the time spent typically planning markdown with a more traditional, often less accurate approach. This time can be reinvested in other benefit-driving planning and trading activities.
Getting markdown right is a continuous challenge for retailers and being the last to begin making analytics-led pricing decisions is not a risk worth taking. The significant cash improvements from using data science and AI to better price end-of-season inventory is simply a no-brainer. And where businesses are being challenged from all angles, markdown is simply worth getting right.
Here at TPC, our markdown optimization approach has a success rate of 100% and our clients have seen impressive results following the implementation of our MDi service and tools. If you wish to get in touch to find out more, please contact us through our website or on LinkedIn.