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www.IndependentRetailer.com MARKETING Markups &
Markdowns continued from page 118
sorts of negative emotions. The fact remains, however, that any reduction in the retail price is re- ally a markdown. Most folks in the retail busi-
ness have an inherent disdain for the very word. Taking too many markdowns represents failure in some area or another. Overbuy- ing, duplication, poor timing of deliveries, and bad assortment planning are all recognized causes of markdowns. Excessive mark- downs raise the cost of goods sold and result in a reduction in gross margin. When margin levels fall below those of operating ex- penses, the store has a net loss. To more fully understand this retail nemesis, let’s uncover some truths about markdowns. Truth 1. Markdowns are the
tuition retailers must pay for the education they receive from their customers. A lot can be learned about how to buy and price mer- chandise from past mistakes. If you really want to know where you screwed up, carefully survey your markdown rack. Truth 2. Since markdowns
are a way of life, as well as an important part of the retail business, it is important that a markdown plan be established. Base the markdown plan around the turnover goals of the com- pany. For example, if your turnover goal is three times, it is important to make sure that stock is sold within a seventeen week period.
Truth 3. Always explain the
markdown to your customer. If you fail to inform your customer that the markdown is for a spe- cial buy, end of season clearance, weekend only promotion, etc., you risk customers not believing your prices, and every sale turning into a mini auction. Truth 4. Overbuying is the
number one cause of excessive markdowns. Stores don’t go out of business because of high mark- downs, they go out of business because they can’t pay for their overbuying. If your turnover goal is three times, you should be careful not to buy more than you can sell within a four month time frame. If you buy more than you can sell,
continued on page 124
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