Continued Thoughts on Clearance

Mind dump on alternative strategies to mitigate the impact an aggressive liquidation approach is likely to have on already strained operating margins.

1. Consider not taking markdowns. Carefully, and with intent, driven by appropriate analysis. ....not by reductions in markdown budgets. Obviously this doesn't apply to seasonal-temperature items. However, for most of the rest, really take a look at this. Sometimes there are "new" versions of the product planned for arrival in Spring. How much "newer" are they? Would it be better to just refill the current version? "Newness" for the sake of "newness" is a dubious luxury in a deep recessionary economy (luxury retailers not withstanding). If the "new" version doesn't meet a need better, differentiate you from the competition, or have a demonstrable reason to be carried (like a multi-million dollar ad campaign from the vendor).....consider canceling the new and re-stocking on the existing version. Merchants all too often get trapped into the momentum of new product introduction cycles rather than harshly and critically examining the true need for a new product in the first place. And given the overall drop in demand this Fall, it's very likely that your vendor has at least sufficient stocks to keep you going through Spring. You can update the mix for Fall 2009.
2. Set different out of stock dates. Most rules based pricing technology is driven primarily by either a GMROI metric or an out of stock date, or the conjunction of the two. Note: it doesn't have to "say" GMROI....but if you are inputting GM targets and some form of inventory metric (turn, sell through, etc) then for all intents and purposes the system is driving recommendations based on GMROI. Generally, one or the other of these two primary metrics has to be set as primary, because they tend to work contrary to one another. Usually, it's the out of stock date. Check it out, and see what really drives those pricing recommendations. At any rate, set different out of stock dates. I suggest that the driving parameter in setting those are when the space will be needed....and not potential cannabilism. If the existence of merchandise on clearance is expected to have a significant impact on regular price sales of a new item (space not being the issue) then see point 1 above. Different out of stock dates allow you to "milk" certain items and aggressively manage others. Do it at the item level.....I don't care how long it takes.
3. Stop trying to match LY sales on a daily or "event" driven basis. Many retailers use events and promotions during the liquidation process to drive volume. The timing of these tends to be roughly comparable to avoid the unbelievable pain of having to explain temporary shifts in volume. This year, you are not going to be able to make those events comparatively anyway.....so stop trying. I'm not advocating abandoning pre-planned promotions, rotos and other events. They are a necessary and normal part of the clean up process. What I am saying is don't tweak the discounts, price points and timing of those events based on a drive to match LY volume on anything OTHER than a quarterly basis. Trying to match "comps" on a day to day and event to event basis is going to destroy the effectiveness and legitimacy of your rules based markdown recommendations. The world changed, and the rules are different. Elasticity is in the process of being recalculated and promotional responsiveness simply is not going to match last year.


The point of the above is to allow you to be aggressive where you really need to be and to encourage and entreat you to take conscious and detailed control over the process. Because the markdown budget (and inherent GM flexibility) really isn't there to be aggressive across the board. And if you don't manage the process then adhoc decision rules are going to be implemented that senior merchandise strategists will have no awareness of. They'll happen at the planner or buyer level when the decisions are made on which rules-based recommendations are implemented, which are adjusted, and which are ignored. Rest assured....your system will generate more recommendations than you have the budget to take. So my advise is to manage both the technology and the process so that the recommendations that are reviewed are more limited in scope, and represent strategic and tactical priorities. Allowing these decisions to take place at the planner or buyer level is akin to allowing yourself to bleed to death from ant bites. Put another way, this isn't about "trusting" your mid-low level merchandising executives. Very few of them have had to exercise these particular skills and this particular discipline....a result of the growth decade. Individually, and particularly for Specialty Retailers, you probably do have merchants who have had to manage through downturns. None of them like this one, and most of those were due to merchandising "misses" (or mistakes). Which is an altogether different approach to managing clearance, as was pointed out earlier in the week.

Monday I'm going to write about an emergency Assortment Review process I think should go on in each and every retailer everywhere.