Success Stories 2

Markdown Optimization

By October 11, 2020 October 13th, 2020 No Comments

Markdown Optimization implemented for a leading US-based apparel retailer that resulted in peaking of sales velocity and gross margin lift.

Big Picture

Apparel retail is known for its extremely short collection cycles. There is always a pressure on apparel retailers to get rid of old or surplus inventory in order to make room for new stocks and styles.
Retailers ideally would want to clear their shelves and in order to do so they offer steep discounts to attract customers but such approaches are typically experience-based and lead to heavy margin losses. In fact, as much as 72 percent of promotional campaigns do not break even. This happens as pricing managers lack the right tools and data to calculate optimal markdown prices for every discounted item, and instead set standard markdown prices. Also, such approaches fail to consider the elasticity of price.
Processing billions of data points and crafting the optimal offer in real-time is next to impossible for people. That’s why retail leaders are looking to leverage AI and Advanced Analytics to optimize markdowns to clear inventory with the highest possible margins.

Challenge

The client is a billion-dollar apparel retailer based in +250 locations across the US. The client ran +2000 promos per month across its +165000 SKUs and 21 categories but was not able to lift margin and sales. The client was facing multiple challenges in running markdown effectively. Some major pain points are-

  • Manual excel based systems made it difficult to determine markdown cadence and evaluate scenarios.
  • Timing and depth of the markdowns were experience-driven
  • Margin loss due to toxic promos and unoptimized markdowns
  • The team leveraged minimal data analysis in their decision-making process for calculating markdowns

The client was seeking a comprehensive solution to address its challenges in crafting a profitable markdown strategy to clear off shelves without losing the margins.

Solutions

It was important to employ a data-backed and automated markdown optimization platform that could provide decision-makers with deeper insights into existing challenges, and enable them to deploy long-term, effective Markdown strategies that serve as a cornerstone of targeted revenue generation goals.

  •  Impact Analytics’s intelligent Markdown optimization application “MarkSmart” was the answer.
  •  Developed algorithm/playbook to optimize markdown cadence and update product price.
  • Prediction and simulation feature with advanced models to estimate lift for future promos and optimization of markdown
  • An optimization algorithm was built to maximize sales volume and absolute GM
  • Sales sensitivities to seasons, macro factors across products across locations were examined

Insights

Impact Analytic’s MarkSmart application enabled the client to glean the following business-critical and value-generating insights:

Product Selection – Identify products that needed to be promoted and best-selling products that do not require promotional efforts.
Discount – Identify what discount percentage would return the maximum on the dollar amount spent
Timing – Identify right products, right time, and duration for markdown.

Outcome

The outcomes of MarkSmart application deployment can be delineated as follows:

  • +15% Gross Margin Lift
  • Sales velocity picked up due to the right timing and cadence of markdown

Conclusion

MarkSmart, an AI-powered markdown optimization application from Impact Analytics helped the client to optimize markdowns and accelerate the sales velocity, leading to a gross margin lift of +15%.