Markdown optimization – retailers, there is another way!By Emma Randerson on July 6, 2022 - 5 Minute Read
Forecasting is your big problem, right? Having what you need, when you need it, without overstocking. Easier said than done.
Two years of pandemic-driven disruption, the rising cost of living and changing consumer behaviors mean finding the right signals and spotting trends is more difficult than ever.
With omnichannel very much front of mind, and potential expansions into new markets on the cards for many, the sheer number of touchpoints customers have with your brand has also grown. That means added complexity around planning and execution.
It’s the perfect storm. Go just a little off course trying to navigate it, and the cost is excessive. More and more retailers today are faced with warehouses full of unwanted stock, soaring reverse logistics costs, eroding margins and, of course, an over reliance on flash sales to shift certain products.
Blanket markdowns are not the answer
They might act as a good ‘quick fix’, but too much focus on flash sales, promotions and markdown events to drive sales means unsteady cash flow.
With costs soaring and margins squeezed, the ability to pull back from the cycle of longer sales periods and deeper discounts that many retailers have fallen into offers a competitive advantage. We talk regularly to retailers keen to reposition as a ‘premium’ brand that doesn’t heavily discount or promote.
So, how do you compete without marking down excessively? Artificial intelligence (AI).
This data technology can ingest huge volumes of data from within your organization, as well as external sources, to provide predictive analysis and recommendations in real-time – simplifying your forecasting, planning, execution and demand planning.
Peak’s Markdown application (app), for example, recommends markdowns for each individual SKU that will increase sell through and save margin – ensuring that you don’t leave profit on the table and out-of-season inventory in the stockroom.
AI markdown with Peak
Markdown helps you set the right price to maximize profit throughout the markdown period while taking into account business constraints and priorities (e.g. target sell through of all close out units, or target weeks of cover for each product). It can be for a specific location, such as a store, or channel (web/retail), or it can be applied at a national or international level.
Markdown is all about understanding how demand changes with price; data scientists would call this price elasticity. How you set price impacts demand, and price elasticity is finding the sweet spot between increasing demand and maintaining gross margin and profitability. Markdown simulates hundreds of thousands of SKU/price combinations to find the ones that will maximize the metrics that matter most to your business.
Every business is different, and Peak bakes business nuances and your way of working into everything we do. We work closely with you to understand the rules, logic and guardrails unique to your business – such as embedding pricing rules or not marking down a certain brand – and ensure they are represented in your Markdown app.
But the app will only drive outcomes and value if it’s accessible. Peak provides a number of options to enable teams to interact with models.
Making AI accessible to everyone
We’re not aiming to replace your existing systems – Peak is designed to work with them. We have a specialist integration team, focused on scoping out how we push the price recommendations to your ERP, POS or price execution systems.
For the more technically-advanced business, we provide markdown scenario planning dashboards. These enable you to explore different markdown strategies and how they will affect your key metrics, deep dive into different locations and product-specific suggestions and ultimately export the prices that will work best for you. For those with less experience, we can also enable full markdown automation with no human intervention at all.
This isn’t an out of the box solution. Your business will change and evolve – and Peak will grow alongside it. You can extend your use of Markdown, integrate complimentary apps, or expand your use of Peak to other areas of the business.
Peak’s Markdown application is already being used by leading retail businesses, helping to power greater levels of profitability with SKU-level markdown suggestions in a range of situations.
Implemented in a single department, one omnichannel retailer identified an opportunity to drive $3 million in additional margin – equivalent to 1% of its overall turnover.
Another retailer calculated that the application saved their 50-person merchandising team 30 days per year. This is time they can now spend growing their departments and focusing on other high-priority tasks.
With Peak’s Markdown application, retailers can – at the click of a button – get intelligence-driven markdown recommendations in real-time, so they know which products to markdown, when and by how much to meet business objectives. This frees up entire teams to spend more time on strategic work and important tasks that are often otherwise neglected!