A key importance in running a good boutique operation is keeping your cash flow strong. You can do this be ensuring that all of your inventory gets purchased by season end. The primary strategy for liquidating your clothing falls on one key strategy..markdowns.
So many things go into markdown strategies, please note every store is different.
Perhaps you are sitting on a large volume of goods that are just taking up space in your store right now. Some of these goods still have value and can live on your hangers for a while yet as “transition” pieces. Others, however, are starting to grow heavy on your mind and your customers just aren’t showing interest.
Here is a scenario: Winter Sweaters
Let's say you invested $1000. Markup: 3x = $3000 at retail.
Moves 50% of these products before Jan. 1 from selling 20% of them at full price and 30% of them at 25% off.
Store Cherry does the same:
By January 1, 2021, both stores have profited $275 on their original $1000 investment amount.
After doing an inventory counts on Jan. 1 they realize they still have 50% left over.
Store Rose is aggressive:
Wants cash now, marks down heavily.
Store Cherry is not aggressive:
I have time to sell them..
Jan. 1 – 7
AGGRESSIVE Store Rose runs a 50% off sale and sells all remaining sweaters in an after-Christmas blow-out sale in one week! Generates an additional $750 in cash for a total Income of $2025.00 – initial $1000 investment and makes a profit.
NOT AGGRESSIVE Store Cherry decides to keep the 25% off sale running through the end of January and only sells through another 10% of these sweaters. In February they decide to bump up the sale to 30% but again that only moves another 10% of the winter stock.
Now the sweaters are 90 days old and the owner is thinking that March is still cold and they could still potentially sell. But unfortunately there is no money for new inventory which causes her cash flow and inventory to be disrupted. They think “I will sit on these sweaters for another month and try to sell them at 50% off (which w/ a 3x markup is still for-profit)” however… that 50% off sale in March only moves another 10% of the remaining sweaters. (to date Store B has generated $1860 in sales on this investment)
April comes around:
Now it is April 1, 2021, and Store B is still sitting on 20% of the sweaters that were delivered and paid for in December! April 1, 2021 “Let’s mark those down 75% and see if customers bite.” Again, the other 10% of the sweaters sell at this markdown leaving Store Owner B with 10% of their original investment still sitting, growing, and aging on their floor.
Eventually Store B marks these last few sweaters down to 85% off in May, and they finally sell.
What is the end result?
Store B total income $1980-$1000 investment = $980 NET profit :)
What is the difference between the 2 stores?
Store Rose was still further ahead due to a good pricing strategy.
Store Cherry made less money, took more time and energy to do it, and tied up cash that could have better been invested elsewhere. :(