Markdown Strategies

Markdown Strategies for Shoe Retailers

By Alan Miklofsky, Sept 29, 2024

Markdowns are an inevitable part of the retail industry, especially in the shoe business, where styles, sizes, and seasonal preferences create challenges for maintaining optimal inventory levels. However, managing markdowns effectively is crucial for profitability. Thoughtful markdown strategies not only help retailers control inventory but also protect margins and preserve brand value.

In this article, we'll explore key strategies for managing markdowns in shoe retail, highlighting tactics that optimize markdown timing, pricing, and communication.

Understanding the Purpose of Markdowns

Markdowns are not merely a reaction to unsold inventory—they’re a strategic tool for retailers to:

1. Clear Slow-Moving Stock: Move stagnant inventory to free up cash flow and shelf space.

2. Optimize Inventory Levels: Create space for new arrivals without cluttering the sales floor.

3. Respond to Seasonal Trends: Ensure stock is aligned with customer expectations and seasonal preferences.

4. Protect Margins: Maintain a balance between selling inventory quickly and avoiding excessive discounts that can erode profitability.

To use markdowns effectively, retailers should avoid arbitrary or reactive pricing decisions. Instead, consider a data-driven approach that incorporates historical sales data, customer insights, and inventory turnover rates.

Key Markdown Strategies for Shoe Retailers

1. Plan Markdowns into the Buying Process

Markdown management begins long before a product hits the sales floor. A robust planning strategy involves:

·        Setting Initial Markup (IMU): Define your desired initial margin by accounting for potential markdowns, allowing room for discounts without sacrificing profitability.

·        Buying Based on Historical Data: Use sales history to predict the performance of similar styles. Avoid overbuying on speculative trends that could result in excessive markdowns later.

By proactively considering markdowns as part of the buying strategy, retailers can set realistic expectations for each product’s life cycle.

2. Implement a Structured Markdown Calendar

A structured markdown calendar helps control the timing and depth of markdowns. Plan markdowns at regular intervals—such as 6 weeks, 10 weeks, and 15 weeks—based on product seasonality and historical sales velocity.

Key considerations for building a markdown calendar include:

·        Seasonal Markdowns: Transition slow-selling winter boots out before spring styles arrive.

·        End-of-Season Clearances: Conduct planned clearances to move older inventory, creating room for new product lines.

·        Event-Based Markdowns: Leverage sales events, such as holiday promotions, to move products in a manner that feels intentional rather than reactionary.

3. Utilize Data Analytics to Guide Markdowns

Use inventory and sales data to guide markdown decisions. Key metrics include:

·        Sell-Through Rate: Measure the percentage of inventory sold over a given period. Low sell-through rates may indicate the need for an early markdown.

·        Weeks of Supply (WOS): Track how many weeks of product are available based on current sales trends. High WOS signals excess inventory, making a markdown advisable.

·        Inventory Turnover: Analyze how quickly inventory is cycling through. Higher turnover indicates a well-managed inventory, while lower turnover suggests the need for markdowns.

Data-driven markdowns help avoid arbitrary discounting and maintain a consistent pricing strategy across all stores.

4. Optimize Markdown Depth

Deciding how deep to discount is a crucial step. While it may be tempting to clear inventory quickly with steep markdowns, smaller, incremental markdowns may be more effective at preserving margins.

·        Incremental Discounts: Start with a smaller discount (e.g., 10–15%) and increase incrementally based on sales response.

·        Volume-Based Discounts: Reserve deeper discounts (e.g., 30–50%) for end-of-season items or products with extremely low demand.

·        Targeted Markdown Categories: Rather than a store-wide markdown, focus on specific categories such as men’s dress shoes or athletic footwear to maintain a sense of exclusivity.

5. Leverage E-Commerce and Omnichannel Strategies

Omnichannel retailers can use their online platforms to strategically manage markdowns. Consider offering different markdown levels for in-store and online customers based on inventory levels and customer behavior.

·        Online-Only Promotions: Use the e-commerce platform to test discount depths before implementing them in-store.

·        Click-and-Collect Discounts: Encourage customers to shop online and pick up in-store by offering slight markdowns for in-store pickup, which drives traffic to physical locations.

·        Cross-Channel Price Adjustments: Utilize data from both online and in-store sales to adjust markdown strategies dynamically.

6. Control Markdown Messaging

Clear and consistent communication of markdowns is essential to avoid confusing customers or diminishing brand value. Implement a tiered markdown strategy that aligns with your brand’s image.

·        Planned vs. Reactive Markdowns: Differentiate between planned markdowns (e.g., end-of-season clearances) and reactive markdowns (e.g., unexpected poor sales). Planned markdowns should feel strategic and limited.

·        Discount Framing: Use language like “Special Offer” or “Limited-Time Savings” rather than simply “Markdown” to maintain a premium feel.

·        Segmentation: Segment email campaigns and in-store signage to highlight markdowns in a way that appeals to different customer groups, such as loyalty members or frequent buyers.

7. Minimize the Need for Future Markdowns

While markdowns are sometimes necessary, the ultimate goal is to minimize their frequency. Strategies include:

·        Strategic Assortment Planning: Limit the breadth of your product assortment to avoid excessive stock in less popular sizes or styles.

·        Just-In-Time Reordering: Reduce markdowns by restocking frequently based on demand rather than committing to large orders upfront.

·        Product Repositioning: Instead of marking down a slow mover, consider repositioning it in the store, pairing it with a complementary product, or featuring it in marketing materials to rekindle interest.

Final Thoughts

Markdowns are not a failure—they’re a valuable tactic when used correctly. For shoe retailers, a well-planned markdown strategy can help maintain profitability, streamline inventory, and ultimately enhance the customer experience. By taking a data-driven, structured approach to markdowns, retailers can avoid margin erosion and keep their sales floors dynamic and fresh.

Managing markdowns is an art and a science. The strategies outlined above provide a framework for balancing markdown timing, depth, and communication, helping shoe retailers turn inventory management challenges into opportunities for growth and profitability.

Alan Miklofsky is a semi-retired Professional Shoe Dog with a distinguished career in the footwear industry. Over the decades, he successfully ran an award-winning shoe business while dedicating 29 years to the National Shoe Retailers Association (NSRA) Board of Directors, including serving as Chairperson from 2009 to 2011. Today, Alan channels his expertise into creating content on issues vital to independent shoe retailers and offering consulting services with a focus on financial oversight. Learn more about Alan Miklofsky online at:

https://sites.google.com/view/alanmiklofskypersonalwebsite/alan-miklofsky

https://www.linkedin.com/in/alanmiklofsky/