Retail and consumer goods
Markdown
A lasting price cut to clear stock that is not selling.
Last reviewedWhat does Markdown mean?
A markdown is a price reduction on goods that are selling too slowly or are out of season, to clear them and free up cash and space. It differs from a promotion, which is a short, planned discount. Markdowns cut gross margin, so fashion retailers watch them closely. Example: a retailer buys 1,000 jackets at 40 each and plans to sell them at 100. It sells 700 at full price and the last 300 at 60 (a 40 percent markdown), so revenue is 70,000 + 18,000 = 88,000 instead of 100,000, and gross margin falls from 60 percent to about 55 percent. Better demand forecasts and smaller first orders reduce markdowns.
Where does it come up in case interview prep?
- How retail works and makes moneyLesson in Retail
- Store economics: the numbers that decide profitLesson in Retail
- Retail players, trends, and how to crack retail casesLesson in Retail
- How luxury and fashion make moneyLesson in Luxury and fashion
- Luxury and fashion economics: channels, markdowns, and currencyLesson in Luxury and fashion
Related terms
- Sell-through rateThe share of stock received that has been sold within a period.
- Gross profit and gross marginRevenue minus the cost of goods sold, as an amount or a percent.
- Shrink (shrinkage)Inventory lost to theft, damage, errors or spoilage.
- Price elasticity of demandHow strongly the quantity sold reacts to a change in price.
- Like-for-like sales (LFL)Sales growth from stores open in both periods, leaving out new and closed stores.
- Sales per square metreStore sales divided by selling space: how productive the space is.
- Private label (own brand)Products sold under the retailer's own brand rather than a manufacturer's.
- Trade spendThe money brands pay retailers and distributors to stock, display and discount their products.