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Markdowns in retail refer to the reduction in the original selling price of goods. Retailers use markdowns to clear out inventory, make room for new stock, respond to slow sales, or compete with other retailers.
Markdowns in retail refer to the reduction in the original selling price of goods. Retailers use markdowns to clear out inventory, make room for new stock, respond to slow sales, or compete with other retailers.
To calculate a markdown, you subtract the reduced selling price from the original selling price. Then, you can divide this amount by the original selling price to get the markdown percentage:
- Markdown Amount = Original Price - Reduced Price
- Markdown Percentage = (Markdown Amount / Original Price) x 100
Markdowns are important for retailers because they can help move merchandise that isn't selling at full price, which is essential for inventory management and cash flow. However, frequent or large markdowns can erode profits and may indicate problems with pricing strategies, buying decisions, or market trends. It's a balancing act to use markdowns effectively without compromising the overall profitability of the retail operation.