Merchandise Lifecycle
A case could be made that the lifecycle of merchandise could be looked at in much the same way as visiting relatives: excitement for arrival and shortly thereafter anticipation for departure. Merchants are excited to receive the next season’s fresh new inventory yet once it lands they try to figure out how fast they can sell it and begin the process all over again.
Each style size and color has its own life expectation. This cycle of life begins when merchandise is received and is complete when the goods have left the store. Several factors help determine a product’s lifecycle. Gender product classification selling season whether the item is a fashion or basic all affect the length of time an item remains in the store. Circumstances that play havoc with lifecycle most certainly include weather (a warm fall can delay the start of boot selling but at the same time extend the life of sandals for example).
Understanding Product Lifecycle
To best understand the concept of product lifecycle (and in particular the exit strategy of same) a merchant need look no further than the local grocer. Bananas illustrate the point beautifully. Most grocery shoppers buy bananas with a hint of green (preseason delivery) knowing that they will ripen quickly on the home counter within a day or two and be perfect to eat (in season). If however you have purchased more bananas than you can eat in a given time period (overbuying) the fruit will soon become overripe (out of season) be covered in little brown spots and be suitable only for making banana bread (markdowns). (Pardon the digression but my banana nut bread recipe is pretty darn good if I don’t say so myself – see insert.) This timeframe represents post-peak season and is where clearance activity occurs.
Exit Strategy
Retailers should have a well-defined exit strategy for all merchandise. As in the banana example previously discussed each item has a “shelf life” if you will. The exit strategy is a function of the…
Store’s Sell-Through and GMROI Goals
The execution of the exit strategy process is subject to a category-specific markdown cadence.
Markdown Cadence
A cadence is a natural rhythm or flow of something. A markdown cadence ensures that all remaining inventory is sold through as profitably as possible while making room for the arrival of new merchandise. Many stores are helter-skelter on this concept and as such end up taking too many markdowns – and usually the timing is wrong.
As a result of no predetermined markdown schedule retailers often end up waiting until too late in the season to take clearance markdowns and never maximize the true margin potential of the classification. Another symptom of a lack of markdown planning is the “panic” markdown. This type of markdown generally occurs when a retailer becomes worried about lack of traffic or needs cash and typically overreacts by temporarily marking down the entire store line or category. No real thought is given to margin outcome or resulting inventory balance. This is truly an example of a ready fire aim approach to markdowns.
Even worse than having no markdown strategy is the store that waits until the season is over on seasonal merchandise and simply decides it would be more cost-effective to “carryover” the inventory in lieu of marking the merchandise down and moving it out. Although there are examples where this strategy may be acceptable it is far from an ideal situation on a consistent basis as it reduces turnover and ties up cash.
There are too many variables to be overly specific so I will only share one general cadence for purposes of example only.
- In-season markdowns: Taken after merchandise has been offered for sale for a predetermined time with limited activity. 20% off in-season might be sufficient to accelerate sales and prevent greater markdowns if not acted upon until late in the season.
- First clearance reduction: Might be one-third off. Sales will spike after the markdown is first
The Lifecycle of Merchandise
A cadence is a natural rhythm or flow of something. A markdown cadence ensures that all remaining inventory is sold through as profitably as possible while making room for the arrival of new merchandise.
Published in the Sept/Oct 2016 issue of Shoe Retailing Today Copyright © 2016 National Shoe Retailers Association Tucson AZ www.nsra.org. All rights reserved.
- The next markdown in the sequence might be 40 or 50% off depending on the merchandise and how aggressive the merchant is. The time to take this reduction is maybe ten days to two weeks after the initial clearance markdown is taken. Sales will again spike and then level off signaling the time for round three the final clearance.
- The final clearance can be easily identified when you see ads that say “75% off” or “take 20% off the previous markdown” or “values to my keyword50 now $49.90 saving up to my keyword00” or BOGO (Buy One Get One). In some cases the final markdowns are now transferred to a markdown room or area within the store where even greater reductions will be taken until all the items are sold (red dot blue dot green dot etcetera). Stores that manage this sequence effectively will actually buy off-price specifically for this area as they may have customers that frequent the sale area.
The example above is generic and will vary from retailer to retailer and by type of merchandise. All retailers should develop a thorough understanding of the lifecycle of merchandise and consistently practice active markdown management. Those that choose not to may end up with . . . banana bread.
Ritchie Sayner is vice president of business development at RMSA Retail Solutions and author of Retail Revelations: Strategies for Improving Sales Margins and Turnover. He can be reached at rsayner@rmsa.com.
NSRA.org Ritchie’s “Markdown” Banana Nut Bread Recipe
Ingredients:
- 1 1/2 cups all-purpose flour
- 1/2 cup sugar
- 2 1/2 tsps. baking powder
- 1/2 tsp. salt
- 1/2 tsp. baking soda
- 1 cup crushed down to 1/2 cup cereal (granola or Wheat Chex)
- 1 egg slightly beaten
- 1/4 cup vegetable oil
- 2 tbsp. water
- 1 1/2 cups mashed banana (3 large)
- 1 tsp. vanilla
- 1/3 cup chopped nuts
Preheat oven to 350 degrees. Grease an 8 ½ x 4 ½ x 2 ½ inch loaf pan. Stir together flour sugar baking powder salt baking soda and cereal. Combine egg oil water mashed bananas and vanilla. Add all at once to dry ingredients. Fold in chopped nuts if desired. Stir until just moistened. Spread evenly into pan. Bake 50-55 minutes or until a toothpick inserted in center comes out clean. Let cool 15 minutes before removing from pan.
Upcoming NSRA Webinars with The Friedman Group
- September 15 2016: Becoming Your Customer’s Trusted Advisor
- October 13 2016: Customer Lies – “I’ll be back. I have to talk to my wife. I need to shop around.” – How to Handle and Close Them NOW!
Register at www.nsra.org. Space is limited so please reserve your place today.
For more information contact NSRA at 1-800-673-8446 or memberservices@nsra.org.
Presenter: Karen Barry
Senior Consultant The Friedman Group
Both seminars are scheduled on a Thursday. Presentations will begin at 3:00 p.m. Eastern Time and last approximately 45 minutes.
Summary of Merchandise Lifecycle
The article discusses the lifecycle of merchandise likening it to the excitement and eventual need for departure akin to visiting relatives. It emphasizes the importance of a well-defined exit strategy using the example of bananas to illustrate how products move from fresh to clearance and highlights the necessity of a markdown cadence to manage inventory profitably.
“Retailers should have a well-defined exit strategy for all merchandise.”
Real-World Examples of Merchandise Lifecycle
The concept of merchandise lifecycle can be observed across various industries. Here are a few real-world examples that illustrate how businesses manage their inventory from arrival to clearance.
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In the fashion industry a clothing retailer might receive a new line of summer dresses in early spring. Initially these dresses are displayed prominently and sold at full price. As the summer season progresses the retailer may apply gradual markdowns to ensure the inventory is sold before the fall collection arrives thus maintaining cash flow and store space.
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In electronics a smartphone manufacturer launches a new model with much fanfare and excitement. As newer models are introduced the older versions are gradually marked down to clear inventory. Retailers often use promotional offers like “trade-in discounts” or “bundle deals” to accelerate the sell-through of older models.
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Grocery stores frequently manage the lifecycle of perishable goods like dairy products. Milk for instance has a short shelf life and is often discounted as it approaches its expiration date. This markdown strategy helps minimize waste and ensures that the store maintains fresh stock for customers.
