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Inventory Management

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Markdowns. What they are, why you need to consider them, and strategies for minimizing your risk.

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Note: “Brands” and “Vendors” are used interchangeably in this post.

Markdowns are what happens when inventory goes on discount.

You’ll find 4 major types of markdowns in retail:

1) Promotional markdowns

These are discounts that derive from any type of promotional sale such as a temporary price reduction, circular promotion, coupons, endcap promotions and more. 

2) Clearance markdowns

An item goes on clearance when the retailer plans to never stock that item again. Maybe it is an older style that will be replaced by that brand’s latest style, or maybe it’s a poor performing item that the retailer will never stock again. Clearance is basically code for “getting rid of excess inventory”. 

 

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Lessons learned from West Coast Port Delays

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As of today (Sunday, 2/22) West Coast ports are expected to come back to life. The backlog will reportedly take up to 8 weeks to clear. So the impact to importers and retailers will be felt long after the labor contract dispute ends.

While all my clients who import felt the pinch (more like 'crush'), some felt it more than others.

The companies that minimized the impact of port closures did so because they could:

  • Divert boats on water to the gulf coast ports (or be ready to pull that lever)
  • Leverage their safety stock in domestic warehouses (one client always keep 6 months of supply on hand)
  • Air ship some inventory as needed
  • Leverage their early (and heavier) orders placed in anticipation of Chinese New Year to fill the unexpected holes due to the port closure.

Which Is Most Important To A Buyer Customer Service, Inventory Management, Or Product?

Without a doubt, all three are equally important.  My guess is you are not surprised.  However, if you read the entire post, you might be surprised by what I say at the end.

Each one of these elements when executed well eliminates risk.  We talk about risk on this blog a lot – and how risk averse retailers are.  And how careful retailers are when choosing which vendors they work with.  It is worth mentioning that retailers are not looking to be jerks or difficult.  They don’t want to stretch vendors beyond their comfort zone and set them up to fail.  Setting vendors up for success sets everyone up to win.

Here is the ideal vendor across all three dimensions:

Customer Service:  The ideal vendor does not over or under-communicate. They provide information when they say they will and present it in a succinct and professional manner.  When problems arise, a problem is not presented without 1, 2 or 3 solutions for the buyer to choose from.  Good customer service also means there is someone close by or who can jump on a plane the next day to meet with me at moment’s notice.  And values relationship building and a partnership approach.  And that means adding value to our relationships with competitive intelligence and interesting data to help me do my job better.  But above all, they listen. They listen for feedback, they listen to hear how they can serve me better or anticipate my needs.  They don’t get defensive and will be open-minded and take to heart my comments.  This is where a vendor can really stand apart from the rest.

 

What Are The Inventory Control Expectations Retailers Have On Vendors?

Making Inventory Management Mistakes are Expensive
It is common practice for large retailers to ask for a concession when you miss your volume projections.  If your product underperformed, major retailers will chargeback the cost of the unsold inventory or worse yet, additionally charge you the margin dollars they lost when your product didn’t sell.  If your product oversold, and you couldn’t replenish inventory fast enough, the retailer may chargeback the loss sales based on a daily sales rate.