Markdown
A markdown is a permanent price reduction on a product, usually to sell stock that is not moving at its original price.
- Is
- A permanent price reduction, usually to sell stock that is not moving.
- Formula
- (Original price − new price) ÷ original price × 100.
- Watch for
- Waiting. A later markdown usually needs a deeper cut to clear the same stock.
Updated
Meaning / 01
What it means for retail and category teams
Unlike a promotion, which is temporary and usually planned or supplier-funded, a markdown lowers the price for good and is typically taken on seasonal, aged or overstocked lines. Teams decide when to mark down, by how much and in how many steps. The first markdown is usually the cheapest, because the stock still has time to sell before it loses more value.
Stakes / 02
Why it matters
Markdown cost is often the biggest swing in a season's margin. Taken early and in measured steps, it recovers more of the stock's value; taken late, it tends to need deeper cuts into a season nobody is buying for. A predictable markdown pattern also teaches shoppers to wait, which turns a clearance tool into a discount on demand that would have paid full price.
Example / 03
Illustrative example
The business and figures are illustrative. None of it is customer data.
| Item | Revenue from the 750 units | Discount given away | Result |
|---|---|---|---|
| 20% off now (sells 700 by season end) | $56,000 | $14,000 | $16,000 more |
| Hold 4 weeks, then 50% off (sells 100 + 600) | $40,000 | $30,000 | $16,000 less |
Both options leave 50 units. Waiting costs $16,000 of revenue.
Read the example as text
A fashion retailer bought 1,000 units of a summer jacket at a $100 ticket. At week 6 of a 12-week season it has sold 250, a 25% sell-through against a 45% plan, with 750 left. A 20% markdown now is expected to sell 700 of them by season end, for $56,000. Holding full price for four more weeks is expected to sell 100, then need 50% off to sell 600 more, for $40,000. Both leave 50 units. Waiting gives away $16,000.
Work through the calculation
Price reduction = (original price − new price) ÷ original price × 100
Try your own figures and see a fuller worked example on the markdown calculator.
Questions / 04
Common questions
What is the difference between a markdown, a promotion and clearance?
A promotion is a temporary price cut, often supplier-funded, after which the price goes back up. A markdown is a permanent reduction, usually to sell stock that is not moving. Clearance is the final markdown on a line the retailer has decided to exit, priced to free the stock and the space.
How do you calculate a markdown percentage?
Subtract the new price from the original price, divide by the original price and multiply by 100. A jacket cut from $100 to $80 has a 20% markdown. Gross margin after the cut is the new price less unit cost, divided by the new price.
When should you take a markdown?
When sell-through is behind plan and there is still enough of the season left for a moderate cut to sell the stock. The later the markdown, the deeper it usually has to be to clear the same units, so the cost of waiting rises each week.
Related / 05
Related concepts
Next step
Look at the price gaps that matter
Bring a few products and competitors. We can walk through matching, observation dates and which gaps deserve a closer look.
