Risk in Store
A New Retailer's Guide to Markdowns, Sales, and Discounts

Theoretically, sales, discounts, and markdowns can help your retail business…

  • Attract new customers.
  • Move old inventory.
  • Turn a profit.

As with so many aspects of running your own business, things are never that easy. Retailers have to do more to differentiate themselves from online retailers and earn the attention of consumers.

Let's look at what new retailers can do to improve their markdown, sale, and discount strategy.

What's the Difference?

Markdowns, Sales, and Discounts: What's the Difference?

Markdowns, sales, and discounts are three slightly different approaches retailers take to lower their prices to strategically sell more products. Here's the breakdown:

  • Storeowners markdown items when they haven't sold as expected. You hope the reduced price will clear out the inventory. (Check out the article "8 Steps to Setting Prices for Your Retail Business" for more on this.)
  • When retailers offer a sale, they're lowering the price on certain goods to drive more customers into their store, thereby encouraging them to spend more money.
  • Retailers can offer discounts to specific groups of customers (e.g., discounts to seniors, students, veterans, and employees).

Most retailers use all three of these strategies throughout the year. But you'll need to know how to use these tools effectively to do well.

Ins and Outs

Ins and Outs of Retailers Lowering their Prices

Getting new customers through a sale, discount, or markdown isn't as simple as just lowering your prices — often, you need to market a sale or make sure you lower prices without losing money in the process while still grabbing customers' attention. Here are a few strategies that can help new storeowners:

  • Marketing a sale. Get the word out on social media, post signs in your store windows, or advertise in the newspaper (or Google ads). For a sale to work, customers need to know that the sale is temporary so that they feel the importance of jumping on the opportunity while they still can.
  • Discounting for the right group. Many retailers use discounts as a way to incentivize customer loyalty. A bicycle shop might offer discounts to members of local or state cycling groups. A move like that could link you with the kind of customers who will provide you with steady business.
  • Timing. Some retailers time their sales with demand. A retailer might offer a back-to-school sale in late July or early August. Other retailers will slate sales late in the season to get rid of old inventory. For instance, a clothing store may offer a sale on winter coats in February to get rid of them before spring. Don't forget to consider when you'll need the extra revenue. Some businesses host a sale to get an extra bit of cash when they need it.
  • Pricing with markdowns and sales. A Forbes article reminds retailers to avoid gradually lowering their prices with markdowns. Rather than whittle away at prices, offer a sale price or sudden markdown that makes the price change seem drastic and appealing to customers looking for a deal.

Before retailers lower their prices, they should consider that sales affect your reputation in good and bad ways. Retailers don't want to come off as cheap — unless that's part of your marketing strategy. If your business caters to upscale customers, avoid the "everything must go" language that you see so commonly among discount outlet stores.

Reaping the Rewards

Reaping the Rewards of Retail Sales

The strategies behind sales, discounts, and markdowns are an important reminder that running a retail business means staying up-to-date with business strategies. Browse Risk in Store for additional helpful articles.

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