8/1/2008
Your First Markdown’s the Cheapest
Bill McCurry
Business is an art, not a science. Science is consistent, demonstrative and repeatable. Art varies, because, as
the old truism goes, “beauty is in
the eye of
the beholder.”
Nowhere is this more accurate than when discussing pricing issues.
A recent report told how “expert” wine connoisseurs, when presented with
the same wine in two different bottles with two different price points, unanimously gave a higher rating to
the $50 bottle.
They strongly preferred it to
the identical wine marked $8 on
the label. Pricing does impact how we perceive things. We believe we get what we pay for. While we’re always looking for a “deal,” something presented as cheap turns us off.
Let’s couple this with
the hard fact that, for most of us,
the season is winding to a close. As hard as we tried, we still have merchandise that hasn’t sold. How do you turn that inventory into cash so
your store looks fresh and you can have money in
the bank—or, at least, owe less to
your creditors?
There are many ways to close out merchandise. This is truly an art. What can work in one market may not work as well in ano
ther. Let’s face it, if a product didn’t sell during peak season at
the original price, you have to do something differently.
One thing might be to simply relocate it in
the store, put up a new display, new signage—anything that will attract attention so
the customer notices
the product and can clearly understand why
they should own it.
If that doesn’t work, sometimes you have to create movement by having a sale. “Sale” is a word so overused that many consumers are anes
thetized to it. But before you decide to immediately dump
the product at half off, are
there ways you can massage
the “art” of pricing to yield more revenue and still get
your desired result?
The answer is always yes—if you act quickly enough.
The time to take
the markdown is not at
the end of
the season when store traffic is low. If you can identify an overstock situation earlier in
the year, when you have regular traffic through
the store, you can take an earlier markdown or promotion and move
the goods at a higher price point. Ra
ther than half-off, think about “Buy three and get one free.” That works out to
the equivalent of 25% off retail and at a much higher average sale price, too.
This is intellectually easy to talk about, but harder to do at retail. It requires us to admit we may have overbought (or undersold, depending on
your perspective). Yes, we did. Every retailer does.
There are times we will have inventory imbalances.
The quicker we move on
them,
the more cash we can generate from those sales.
Sometimes just taking
the merchandise off sale, putting it in a back room for a month and
then bringing it back out as “new” will create enough excitement to move things along. Sometimes an incentive or game for
the store staff can generate movement.
There was one garden center operator who assembled his seven employees and showed
them seven $20 bills. He pointed to a pile of trowels and said, “By
the end of
the week I’ll ei
ther give each of you $20 or I’ll offer those trowels at $10 off to our customers. Do you want
the money or should we give it to
the customers? “One of
the employees was a newlywed and that $20 meant a lot to her. She encouraged everyone on staff to talk to
the customers about
the trowels. You know what happened—at week’s end
the pile was gone and
the entire staff got
the cash.
When all else fails, giving half or three-quarters off can move merchandise, but it won’t move
the bottom line in
the right direction. Yes, we need to close out
the merchandise, but let’s find creative ways to do so sooner ra
ther than later. Let’s do it in a way that leaves cash in our bank.
Bill would love to hear from you with questions, comments or ideas for future columns. Please contact him at wmccurry@mccurryassoc.com or (877) McCurry (877) 622-8779.