How to Execute Effective Markdown Strategies for End of Year Sale
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NOVEMBER 2021 • INDUSTRY REPORT How to Execute Effective Markdown Strategies for End of Year Sale Introduction | Identify the Start and Duration of the Sale Period | Understand the Mechanics of Markdown Execution | Identify the Discount Depth for Each Category | Validate the Performance of the Markdown Strategy | Key Takeaways Written by Aqilah Zailan, Senior Business Analyst
Introduction
Markdowns are a crucial part of retail, allowing retailers to kill several
birds with one stone. If done right, markdowns not only improve cash
flow, they also free up inventory and get your customers excited about
older products.
As we wrap up the final quarter of 2021, it’s time for the end of year
sale period. But with so many retailers launching promotions at the
same time, it can be easy to drown in a sea of discounts. To help you
prepare for this critical season, we’ve compiled considerations, tips
and techniques to optimise your markdown strategy.
One of the best ways to navigate year-end sales is by analysing the
strategies adopted by leading fast fashion retailers. With real-time
market insights,
you can:
1. Identify the start and duration of the sale period
2. Understand the types of markdowns and promotions adopted
3. Identify the discount depth for each category
4. Validate the performance of the markdown strategy
By performing these key steps, it will help you understand what drives
sales and map out your own discounting plan.
O C T O B E R 2 0 2 1Instagram
• M ARKET INSIGHTS
@mimpi_kita
Step 1: Identify the Start and
Duration of the Sale Period
Chart 1: Zara US new in vs. first discount by month
Getting the timing right is crucial when launching a promotion. At the
same time, retailers have to choose a suitable duration as holding a
sale for too long can take away from its exclusivity. To identify the best
time to launch the sale, we’ll be using Omnilytics’ calendar module to
look at Zara’s markdown strategy last year in the US.
Unlike many fast fashion brands today, Zara does not rely on constant
markdowns to drive sales. Instead, the brand only launches big
promotions twice a year, once in the summer and another at the end of
the year.
2 December 2021
All data used in this report comes from products retailing online as tracked by Omnilytics, unless O CTO BER 2021 • M ARKET INSIGHTS
otherwise mentioned.
From the launch timing, it’s clear that Zara’s intention with launching Chart 2: Zara US first discount by date the sales is to clear up inventory before the new season. Limiting the promotion period to just twice a year creates urgency for customers to shop as they know the sales are limited. For a more precise analysis of markdown launches, look at the first discount by date. From Chart 2, we can see that Zara discounted the bulk of its products on 27th December, with 4,299 SKUs discounted, followed by 31st December (5,059 SKUs). Zara staggered its markdowns by increasing the number of discounted products gradually, peaking on 31st December. The ongoing discounts by date chart help you determine a retailer’s end of year sale duration. Here, we can see that Zara’s end of year sale Chart 3: Zara US ongoing discounts by date period started from 27th December 2020 and lasted just over four weeks until 22nd January 2021. The brand also limits its sale period to four weeks in the summer, which entices the customers to buy faster. Now that you know when to start discounting, it’s time to identify what to discount. As the objective of year-end sales is to clear inventory for a new season, retailers should prioritise aged stock. Learn more about how to identify slow-moving products based on ageing in this article. All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned.
Step 2: Understand the Mechanics of
Markdown Execution
Chart 4: Zara US first discount and discount range by day of the week (27th & 31st December 2020)
Retailers rely on different year-end sales tactics to accelerate stagnant
inventory. Understanding the types of markdowns and promotions
adopted, and validating their performance can help you plan your own.
At the start of the sale period, most of Zara’s products were discounted
at 30-39% off and followed by 20-29% off.
On the following week, Zara put 18% more products on markdown.
Most of the discounted products still fell under the 30-39% off range
(31% of the SKUs). However, Zara launched deeper discounts whereby
26% of the SKUs were discounted at 40-49% off and 12% was in the
50-59% range.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless
otherwise mentioned.
At the mid-point of the sale - from 10th January onwards - Zara had
fewer SKUs on discount. But the products that were on sale were given
Chart 5: Zara US ongoing discounts and discount range by day of the week (10th & 22nd December 2020)
deeper discounts.
By the end of the sale on 22nd January, there was a wider overall
discount range, from 20-89% - with most of the SKUs falling under the
50-69% off range.
From this analysis, we can conclude that Zara started out with shallow
discounts and gradually increased the discount depth and range as the
sale progressed. Staggering your markdowns like this is a good way to
proactively keep track of the sell-through rate and balance stock.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless
otherwise mentioned.
Step 3: Understand the Mechanics of
Markdown Execution Chart 6: Discounted SKUs at Zara on 27th December 2020
For the first batch of discounts on 27th December, most of the
discounted products at Zara were comprised of the women’s range.
Diving deeper into the discount depth, seasonal products like fur
jackets, coats and leather attire were immediately discounted at
between 60-79% off. Meanwhile, essential items like jeans and basic t-
shirts were given shallow discounts at 10-19% off.
On its peak sale period four days later, Zara discounted its mens and
kids range for the first time. By holding off on discounting its mens and
kids range, Zara was able to get maximum exposure for each category
- womenswear first, followed by mens and kids.
Chart 7: Discounted SKUs at Zara on 31st December 2020
Another strategy to take away for your own end of year sale is how
much to discount different product categories. Seasonal items that
can’t be carried forward to the next season should immediately get a
big price slash as you want to clear your stocks as fast as you can.
Essential items, on the other hand, can be given lower discounts to
entice customers to buy while still keeping a comfortable margin.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless
otherwise mentioned.
Step 4: Understand the Mechanics of Markdown Execution After strategising and carrying out the markdown process on the identified items, the best practice thereafter is to measure the performance of your markdown. This helps you track the efficiency of the strategy applied and can help determine if it can be adapted into future markdown implementations. As we’ve identified Zara’s end of year sale period in Step 1, we can use the competitor benchmarking module on the Omnilytics dashboard to see if the brand’s markdown strategies were effective.
Zara’s end of year sale performed well - registering a 77% sell-out rate.
Sales dropped after the first week of promotion but gradually
Chart 8: Discounted SKUs at Zara on 31st December 2020
increased before peaking at the final week. Overall, the markdown
period was effective in driving sell-out as it was a 485% increase from
the previous month.
While sell-out rates are a good indicator of your trade performance,
you can also compare your initial stock level to the current post-sale
level. This is especially crucial if your main objective was to clear off old
inventory ahead of a new season.
At the peak of its end of year sale, Zara had 11,321 discounted SKUs
and it reduced to 7,376 in the final week. In total, the brand was able to
clear 42% of its inventory during the end of year sale.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless
otherwise mentioned.
Key Takeaways
• Ahead of the Competition: To maintain a competitive edge, brands
and retailers must approach key promotions and sales events like
the end of year sale period tactically. Identify your objectives for the
sale - whether it’s to clear inventory or boost sell-through - and
strategise your markdowns based on that.
• Understanding the Market: Studying the competitors' markdown
strategy is always a good practice to be conscious of their moves.
Brands and retailers can assess their competitor’s game plans and
discover opportunities or gaps. At the same time, monitoring your
competitors helps you keep your own strategies aligned with the
current market.
• Effective Planning: While markdowns are inevitable, it does not
have to end up in loss. With careful planning and granular analysis
of key brands’ strategies, you can plan an effective promotion that
meets your business goals.Definition of Key Metrics
Metric Description
Assortment SKUs Count The total count of stock keeping unit (SKU) i.e. the number of styles that a brand offers. In the report context, it is the total product count within a data set.
Popularity Score Popularity score takes into account product age, replenishment factor and discount rate over time.
Trend score is the average popularity score in the last 6 months. It is the difference in popularity score between current category and all categories. If
Trend Score current category score is above all categories average, the line will be green, and the score will be positive. The more popular a category relative to other
categories is, the higher is the score. The less popular categories will be red, with a negative score.
Median Price Refers to the price of the product at the mid point of the data set.
New-In The products that are newly added to the retail website within the timeframe selected.
New-In Contribution % Calculated by adding the number of new-in product count over the total new-in count within a data set.
Discounted The products that were listed with a markdown within the time frame selected.
Sell-Out A product registers a sell-out event when it is indicated as out-of-stock or no longer published on the website.
Sell-Out Rate Calculated by dividing the number of out-of-stock product count over the total product count within a data set.
Signals consumers’ willingness to pay at full price. It is calculated by dividing the number of out-of-stock product count at full price over the total number of
Sell-Out Rate at Full Price
out-of-stock product count.
Sell-Out Contribution Calculated by dividing the number of sell-out product count over the total sell-out count within a data set.www.omnilytics.co
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