There is no one single winning formula in deploying markdown. Both Boohoo and H&M employed markdown strategies that were tailored to their respective consumers.
Relevant Markdown Assortment: While Boohoo is notorious with its constant time-bound promotions in creating urgency, its markdown strategy worked because sell-out was captured at shallow discounts which in turn protected profit margin. The key to its success lies in launching new and seasonally relevant markdown items that meet consumers’ demands consistently.
Smart Discounting: Traditional retailer, H&M returned to fundamental practices by scaling back on heavy discounting and focusing on members-only offers – a deliberate strategic move to drive full-price sales and protect margin.
Less frequent markdowns and executed at the right discounts, coupled with improved seasonal assortment offering, have resulted in increased net sales and gross profit in 2019.
One Event, Different Discounts, Similar Sell-Outs: Black Friday exposed distinctly different discount strategies by Boohoo and H&M respectively. While Boohoo ran offers in the week leading up to Black Friday and then dived deep at up to 75% sitewide, its upward sell-out movement mirrored that of H&M, who launched just 20% off sitewide on Black Friday.
Next Steps for Brands
Execute Promotions Tactfully: While Boohoo’s frequent time-bound promotions has proven to be a successful strategy, it can negatively impact the brand image in the long run. Increasing environmental concern has led a growing number of retailers to opt out of running markdowns on Black Friday. In the coming years, ‘sustainability’ will take higher priority and incorporated into most retailers’ business strategies.
A Balanced Strategy: Taking the key learnings from both retailers, markdowns can be effective when executed with the right assortments paired with the right discounts, and launched at the right time.
While the fundamental practice on running promotions/sale on aged inventory is key, retailers can also develop new assortments specifically for markdowns, which will deliver predictable profit margin to counter the losses of aged products sold at deeper discounts.
Plan & Execute with Data: Retailers should ask these 3 critical questions when making decisions on markdown: 1) What items should enter markdown, given their performance during the season? 2) When to execute a promotion/sale to achieve margin and sell-through targets? 3) How deep should discounts be to achieve margin and sell-through goals? Always measure each markdown effectiveness, and layer the results with market insights to make informed decisions and avoid inventory risks.