The Q Approach

Quantum Retail’s approach to markdowns and exit management starts from a different point: by understanding how a product will sell through its entire life on a location by location basis. Having made that initial assumption, it then continuously re-evaluates how it expects the product to sell- in real time. This enables retailers to understand which stores will offer the greatest potential for full price sales – over the remainder of the product’s life and allows the retailer to plan an exit management strategy.

Get the right product in the right place and fulfill based on product performance //

The objective is clear: get the right product in the right place to start with – then fulfill based on how products are really performing at each store – giving the product the best chance to sell at full price and identify when and where markdowns are truly necessary. Knowing the objective is one thing, but today retailers now have the means to reach it – Q.

Markdown Optimization:

Given an on-hand inventory, exit date for the merchandise, forecast of demand through the exit date, business rules governing the timing and depth of markdowns (including a pricing ladder that specifies eligible prices), we find the optimal markdown cadence that yields the highest expected profit. When delivered as a service (as is the case today), neighbor markdowns (for both a time and depth perspective) can also be made available in lieu of what-if product capability.

Managing markdowns: why prevention is better than the optimization cure //

Markdown Optimization has become all the rage of retailers and retail technologists, but what is a markdown and how should we optimize it? A simple definition is a reduction in price, or the amount by which a price is reduced. To mark down is to alter price in order to raise demand. At one time retailers called this exercise ‘clearance’ and marked down the price of their goods just once a year, if ever. That was in the annual sale, a time when demand was low and the retailer wanted to clear excess stock in order to make way for new products. Today markdowns are a continuous process for the retailer. Clearance sales are seldom annual events. They may be seasonal, and in the fastest moving retailers – fashion in particular – the retailer may choose to mark down items literally every week.

Margin erosion //

For some retailers the process of marking down products has shifted from being an exercise designed to manage the end of the product’s life to becoming a promotional tool in itself… and customers have noticed. Whether actively promoted or not, if markdowns are near-continuous, regular shoppers become accustomed to the process. This not only increases off-price demand, but also can decrease full-price sales and seriously erode margin.

The need to get markdowns right //

If the retailer were to achieve perfect product planning, purchasing and allocation, throughout their stores, there would be no need for markdowns. In reality, we know this Holy Grail is unachievable and the need for markdowns will always exist. What more can be done to minimize markdowns before the end of the product lifecycle? As product lifecycles become ever shorter, getting it right has never been more important in maintaining competitive advantage and profitability.

Inventory execution //

Some stores are out of stock way too soon in the product lifecycle and others are left with far too much stock at the end which has to be marked down. These are fundamental errors in the fulfillment operation that retailers cannot afford to make, but they happen all too often. The key operation between the initial buying decision and the final end of line markdown is in inventory execution – managing the supply of goods to minimize out of stocks, lost sales and overstocking.

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Managing Markdowns: Why prevention is better than the optimization cure
Dr. Linda Whitaker, Chief Scientist, Quantum Retail

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