- Disruption to Markdown Timing: Farfetch vendors carried out more markdowns in April this year to clear off excess inventory brought on by Covid-19.
- Product SKU-level Performance Tracking: Monitoring product movement at a granular level enables tactical markdown executions while protecting profit margin.
- Curated Promotions: A disciplined and personalised approach helps to offload inventory while keeping customers engaged.
Discount Driving Forces
The US economy is largely driven by consumer spending, which accounts for 70% of its GDP. As the coronavirus shows no clear signs of slowing down in the US, jobs are no longer secure with consumer spending severely impacted. Approximately 20.5 million jobs were lost in April, putting the US unemployment rate at 14.7% – the highest since the Great Depression.
Business closures and layoffs have caused the steepest monthly drop in US consumer spending ever recorded at 7.5% – 3.6 times higher than the previous record of 2.1%.
A Glut in Inventory
Physical store closures and supply chain disruptions are causing a surplus in inventory. Being confined to solely digital channels, retailers are unable to drive out as much inventory compared to pre-crisis conditions.
Moreover, some retailers have adjusted their Spring/Summer collections, prioritising stock that will sell now to accommodate customer buy-now-wear-now preferences, while delaying launch timings for products that can be introduced at a later date.
Shifts in Consumer Spending and Behaviour
32% of US citizens have experienced negative impact towards their income due to Covid-19 and expect to decrease spending on apparel by 51% in the coming weeks. Cash-strapped consumers are now shifting towards a new discount mindset as retailers delve into deep discounting to overcome a glut in inventory.
With the current climate, how can retailers markdown effectively and still protect profit margins?
This report aims to identify key lessons at leading brands and share how to execute smart markdown without hurting profit deeply and eroding brand equity.
More than 1,330,000 womenswear data points were screened from March 2019 to May 2020 across the US market full-price and off-price channels in the luxury and premium segments – including Farfetch, Net-a-Porter, Yoox and The Outnet. Direct-to-consumer (DTC) brand, Everlane, was also analysed to uncover how smaller players markdown differently from the bigger brands.