Markdown Optimization And Its Impact On Fashion Retailers

Zara, La Garconne, Aritzia, Totokaelo, and Reformation—these names need no introduction when it comes to online shopping for women. Listed among the top twenty-five fashion retailers, these websites have made their mark not just in the fashion industry, but in the field of retail business as well. Zara’s vast success has revolutionized fast-fashion retailing and has set its mark in the e- commerce field.

What Is Fast-Fashion?

The term fast-fashion refers to a hastened production processes to launch the latest trends into the market, as quickly as possible and at the cheapest possible price. The conventional method of introducing trends on a seasonal basis is broken with this method as new trends are released intermittently almost by the day. This encourages customers to visit the stores more often to keep up with the latest in fashion.

This is made possible by efficient supply chain management and price optimization software among retailers. Despite its beneficial features for retailing, the concept has been criticized for giving a “throw-away” attitude to the customers and designers alleging about the fact that their designs have been duplicated and mass produced.

Markdown Optimization

This term refers to slashing prices, typically for clearance sales at the end of a season. This method helps in increasing the profit margin, sell-through, as well as inventory through product assortment. It helps retailers deal with the dynamic shopper behavior and manage the fast-paced inventory depletion rates. The workflow is an amalgamation of science, process, strategy, and constraints that ensure high profits.

Markdown optimization is a strategy that is not just devised to be used before the sale season, to eliminate faulty processes and decisions in the long run. The method needs to be implemented both post and pre-sale seasons. Instead of using guesswork as the base for your decisions regarding the store, style, and the customers, retailers need to switch to an analytic approach. For instance, you could use an optimization tool to keep a check on your data and processes and use technology to predict the upcoming trends based on the local demands.

Assortment Planning

The assortment planning at a retail store depends on the type of products that are available at the store at a particular time. It helps determine the most appropriate type of merchandise that need to make up the store’s assortment, with the primary focus on increasing the profits for the store.

Assortment planning is essential for fashion retailers as they constantly need to renew their assortments with changing seasons and trends. The launch of new products and customer tastes also have equal weightage in the importance of assortment planning.

Keeping in mind the challenges like a fixed store space and monetary funds, a retailer needs to carry a trade-off between these three elements:

  • Number of categories in the outlet
  • Number of SKUs in each category
  • Number of items in inventory to be stocked beforehand

With the retailing trend headed towards fast fashion, assortment planning needs to be dynamic and quick. Assortment changing is the key to success for fashion retailers when dealing with modern customers.

Zara, among other fashion retailers, has combined the strategies of assortment changing along with markdown optimization to raise its profit margin tremendously. This is even more helpful when retailers are taking to omnichannel platforms for their marketing strategies. Despite minimal in- season promotions, Zara was able to be triumphant due to their price optimization model and changing assortments strategy.

Apurva Thakur

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