Finally let’s look at how to manage the end of the season successfully. It’s easy, right? Just make sure you sell as much as you can at the best possible price, with as little stock left over as possible. We ́ll show you that it really can be that simple.
End-of-season management – How to master it?
The first thing to emphasize here is that even though we talk about the END-of-season management, the earlier you start preparing for it the better. For instance if sales are not progressing as they should and you need to markdown some items, it’s more cost-effective to make a small markdown early rather than a big one just before the end of the season. So, as outlined above, the single most helpful thing you can do is actively monitor your projected sales, margins and stock levels, based on the latest hard data, and to take action as soon as it becomes apparent that you need to.
So, what should you do? Let’s assume that you have retained part of the stock in the central DC so you can still react to sales. If you’ve already shipped your entire stock to your stores, your options are limited. Where there has been an over-allocation you need to markdown, and where too little has been allocated you’ll lose sales (unless you are prepared to accept the extra costs of making transfers between stores). But if you kept a stock buffer in the DC you have the flexibility to react by allocating that stock to stores where it’s most likely to sell out and at the best price.
The single most helpful thing you can do is actively monitor your projected sales, margins and stock levels, based on the latest hard data, and to take action as soon as it becomes apparent that you need to.
It’s also very important to react according to how different products perform. Where products are selling pretty much as expected you can follow the allocation guidelines as laid out above and allocate the rest of the central stock to all stores based on the latest forecasts and stock positions in the stores.
However it’s likely that you’ll also have products that have sold more than forecast so that your centrally-held stock is quite limited as you enter the final weeks of the season. This is the best sort of problem to have, at least from a supply chain point of view. For efficient end-of season management you could choose to allocate that stock evenly across all stores, but that is not necessarily the most profitable route, as the quantities for each store might be so small that it doesn’t make sense. So one alternative would be to allocate the stock to a limited selection of stores with higher run rates, thereby saving on logistics costs, or perhaps allocate it all to online channels.
The more challenging situation is where you realize that you won’t sell out all items at their full price. The earlier you can identify such items the better, so you can react in good time – given enough warning simply giving such lines more prominence in-store, strategically placing those items on mannequins, even a window display might be enough to boost sales and minimize markdowns. In other situations simply cancelling further orders is enough, though this isn’t generally an option given that stock is typically purchased months before the season begins.
When everything else fails – How to reach optimized markdowns
When all else fails retailers often need to use markdowns, at least for some items. Understanding how different items and brands react to price changes and promotional activities is crucial for markdown optimization, and this is something where advanced analytics tools can help. Great data and analysis, coupled with intuition and experience, is what makes for the best decisions.
To select the best rounded markdown figure you need to be able to compare the effects of each option.
It is useful to know the optimal price reduction or markdown percentage for each item, but from a practical point of view that is often not enough. How many times have you seen calculations spit out ideal markdown percentages like -34%, -57% or -62.5%? So rather than using the product level optimum you often need to decide between certain standard reductions – 30%, 50% or 70%, for instance.
To select the best rounded markdown figure you need to be able to compare the effects of each option. Basically you are asking your system; ‘if I choose a reduction of ‘x%’, how much will my sales increase, will I sell everything I have, and what will the total profit be for me?’ In our experience it has been very useful to be able to simulate ‘what-if?’ scenarios, compare them, perhaps make changes and updates, and then finally lock down the percentages.
In our experience it has been very useful to be able to simulate ‘what-if?’ scenarios, compare them, perhaps make changes and updates, and then finally lock down the percentages.
As a final note we’d like to emphasize that this should not be the end of the markdown optimization process – you need to monitor your projected sales and stock levels constantly to see how markdowns affect them. If there are substantial deviations from the simulation of your chosen markdown scenario, you then need to take further action to ensure successful end-of-season management.
Robert Fredholm, Project Manager
Jesse Nieminen, Business Development Manager
Henri Nikula, Technical Project Manager
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