Every store owner should carefully craft a strategy for how they liquidate merchandise. This strategy will employ various tactics (think “why, when, where, who and how”) that tie into the strategy and which are intended to reduce inventory as quickly and profitably as possible. Your strategy will include three key areas of focus:

1. Planning For Profitability

2. Marketing

3. Point Of Sale Execution

1.Planning For Profitability

Your merchandising strategy should include planning for profitability. This will help your company maintain the highest gross profit margin ratios you can possibly achieve and in order to make that happen, you need to execute a plan with a focus on controlling markdowns. Any retailer can lower the price on goods, but better retailers understand how markdowns negatively impact profits and thinks about executing markdowns on the back end of a product lifecycle BEFORE the goods are bought.   

• Buying right is a necessity. Your shoe buyer needs to understand the total value of markdowns that may occur to liquidate the entire purchase. The process of considering the question leads to learning how to negotiate a purchase that meets overall margin goals.  Good Retailing includes the exercise of measuring and mitigating risk!

• One aspect of planning for profitability is proper price point setting. A good buyer calculates out a “proforma” before he/she invests in additional runs of closeouts to add to their clearance inventory.  

• A retail business plan includes a ratio (i.e, budget) with limitations for how much in aggregated markdowns can occur annually in order to meet the gross profit dollar goals of the business. 

• A retail business also has fixed and limited expenses and thinking about those in relation to gross profit goals in conjunction with the markdown budget helps the business manage goals, expectations and profits.   

Setting the Price for Profitability

CLEARANCE PRICING should be set to produce the highest per item and aggregate margins on the goods in question. The question is “What is the maximum price you can price these goods at today to sell within a reasonable period of time?” 

CLEARANCE PRICING on individual items should not confuse customers! It should be straight-forward, easily understood and easily calculatable. People have debated this for years, but I simply don’t care that much anymore (since I retired to the position of Grumpy Old Man) whether you use percentages or dollars. 

• I think dollars make more sense, but if you disagree with me (you shouldn’t), march forth with your plan and execute your event. If you believe customers can calculate percentages (they can’t!), move ahead cautiously. 

• If you still think it is better to use percentages, go ahead and do what you want. They work some of the time, I agree... but it depends on the situation. Changing it up and moving back and forth between dollars and percentages probably works the best. Next week’s event needs to entice this week’s customer to make a return trip.

• Whatever you do, make sure the customer understands what the “deal” really is. 

2.Marketing

Marketing is an important aspect of the Clearance Strategy that is cultivated by trial and error. The process of developing a marketing plan to move clearance merchandise will include significant thought to who your clearance customer is, how to entice them, content and layout of advertising and execution of your marketing plan. 

• Your “offer” should be BIG AND BOLD and STAND OUT in order to effectively EXCITE the prospective customer. If you fail on this assignment, you now need to find replacement customers for those transactions you allow to slip through your fingers. Everyone in your organization, from your buyer to your manager to your stock clerk plays a critical role and anyone of them (including you) can mess up a good theme. 

• Your Director of Marketing (that might be you) needs to understand that marketing a sale is about creating BIG VALUE in the prospective customer’s mind — enough to a) get them off of their couch and headed to your store, and b) get their wallet out and ready to be charging up A STORM! You want them leaving your store with the maximum transaction that they’ll be happy with when they get home. And… you can’t do that if you confuse them. 

3.Point Of Sale Execution

On the selling floor, you have these concerns to think about and execute proficiently: 

• Presentation (Signage, Display, Ticketing)

• Salesmanship

Presentation / Key points

1. Presentation/Display of Clearance Merchandise

• Key components of Display

• Clearance merchandise should be presented in a manner which:

• Either stack shoes by brand or style (my preferred method) or by size (sometimes a big fat mess).

• Plan for maximum shopping convenience for the customer to select and make a decision. If it is hard for the consumer but easy for you, rethink it! 

• Give consideration of how to set varying price points and thought to how that might confuse the customer or if it confuses the customer.

• Reduces (if possible) creation of mis-mates. 

• Tidying up often is a requirement – there is a rare customer who likes chaos. I suggest it is distracting and will reduce your sales and increase your mismates. 

2. Proper ticketing

• Proper Ticketing is comprised of this main component: CLARITY

Our recent experience…

My wife and I went out to dinner with friends in early February. Since the restaurant we were so looking forward to visiting wasn’t open till 5 pm and we were early (a condition of getting old and being semi-retired is eating dinner early)… we occupied ourselves with a trip a retail store.

My wife, Annette, after 43 years, has finally become my regular dinner date and she is equally interested in good retailing (or she sometimes pretends to be just for my benefit) …or what passes for good retailing these days. 

So, we took the opportunity and visited REI next door to the restaurant. I am not sure the last time I was in an REI but it could have been 20 years ago on some vacation, looking for ski clothing I think in Colorado. We took a look around the soft goods assortment upstairs.

The single visible sales associate stopped us; he was working what I believe is an 8,000 sq. ft. selling floor, and he engaged us in a conversation. His entire play was to try and sign us up as a member of “the club,” but he didn’t take the opportunity to try and make any sale even though we demonstrated some interest.  We were very impressed with the quality outdoor apparel assortment. We wished we could have sold this much apparel in our stores; add-on, ticket-maximizing sales always excited us during our 40 year store owning experience.

 I was surprised at one thing and I hope this isn’t an issue in any of your stores.

On at least 90% of the clearance clothing, the prices were scribbled very hastily and small, with what appeared to be ink from a cheap fine point red pen. The amounts were most illegible. In most cases, even though  we conferred with each other, we were unable to discern what those prices were. 

My point about proper ticketing is four-fold:

1. Your clearance customer is not the same customer as your regular customer.

The clearance customer is always looking for a deal and often “bites” (i.e, executes) — since they are, by definition – A SALE CUSTOMER, but in order to convert this customer, you need to make sure they understand what that deal actually is. They are probably more experienced at your segment of the industry and working a clearance sale than your employee is. 

However… a good mystery is a book and not what clearance sale pricing should be designed around! That isn’t good marketing nor good retailing.

2. Clarity will improve your sales. 

This particular consumer is in search of clarity. They are used to shopping lots of sales and walk when they recognize that clarity is not apparent in your offer. Anything that makes them wonder is more likely to result in NO SALE than a sale. And, this is true, regardless of your signage. You wrote the signage, of course YOU UNDERSTAND it. Don’t make the faulty assumption the target customer understands it as well as you do! 

On my trip to REI (and I am sure they are a great retailer, normally, or they wouldn’t be around), I was not about to go find a salesperson and ask for clarity on even a single piece I loved. 

I, like many customers, crave consistency and reward a straight forward and good deal. Your clearance deal can be the best deal in the market, but if your target consumer doesn’t get it, THEY WALK, it’s that simple. While I was in the market that day (currently on a fitness binge and had bought 3 pairs of jogging pants in the prior 60 days), I was turned off and was not converted. I don’t think I am the exception.

‍3. National Stores have a format and standard for this sort of thing (pricing and signage). 

By the way, the signage was fine in REI. It was someone locally who dropped the ball. District Managers (or owners) should be checking to make sure this standard is met.

4. The big point…

Locally owned stores should adopt professional standards and this was another opportunity for the local competitor to take business away from the national. 

Summit Hut is that local outdoor apparel competitor in this market and they have an easily accessible and very nice location only two miles north in the direction of plenty of residents who can afford the price points) with people who are knowledgeable and care and execute. A local retailer can always outperform a national chain. 

Salesmanship

Most employees (and their supervisors, unfortunately) would like to believe that clearance goods sell themselves. I don’t believe that will always work. Sales assistance always adds value, so please encourage staff to offer assistance (and stick around if necessary to ask questions and encourage sales). 

The sooner goods leave your store the better. Small markdowns, if they don’t work quickly, will turn into large markdowns, so it is in your interest to get your staff focused on the goal of getting the goods out the door to the first customer who shows interest.  

You need to sell your staff on the value of helping reduce the growing inventory of obsolete goods as a means to their goal of increasing their own ability to improve their sales and their own commissions. 

Summary…

Supervise and double check how your store personnel are executing the tactics associated with your clearance strategy. Errors are sometimes created because your staff may not know how their actions impact your plan. This miscommunication could be costing you lost opportunity in dropped sales!

This is the fifth in a series of Footwear Insight columns authored by Alan Miklofsky, a shoe industry veteran whose business was awarded the top score in the Footwear Insight Gold Medal Service Awards in 2019. After a long, successful career as a shoe store owner, e-commerce pioneer and trade association leader, Alan is currently a business consultant.

For more information on Alan, visit his LinkedIn page at: https://www.linkedin.com/in/alanmiklofsky