Markdown and clearance sales:

clear out inventory

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Markdown: A Profession in Its Own Right

In everyday language, markdowns are often confused with sales; both result in a lower price. Yet the logic behind them is opposite.

• A promotion is a temporary and reversible marketing tool: it aims to generate traffic or sales growth for a product, which will then return to its regular price.
• A markdown is a structural, non-reversible price reduction: it is applied to inventory that must be sold before a deadline (end of season, end of collection, expiration date), and the price never goes back up.

Confusing the two leads to two symmetrical mistakes: treating a markdown as a one-time promotion (and thus under-discounting it, allowing inventory to pile up), or treating a promotion as a markdown (and permanently damaging the price perception of a product that didn’t need to be sold off at a discount).

Why does poor management cost so much?

Markdowns are not just a minor end-of-season issue; they are one of the biggest sources of margin loss in the retail industry. According to a Retail Dive analysis of the U.S. market, markdowns cost retailers approximately $300 billion in revenue in a single year—nearly 12% of the sector’s total revenue.

This figure reflects only the visible part—the marked-down price. It does not account for the cost of storing the product while it awaits markdown, nor the opportunity cost of the retail or warehouse space it continues to occupy.

The real risk: selling off too much—or not enough

The most commonly discussed mistake is selling off a product at a price that erodes too much of the profit margin—a product that could have been sold at a higher price. But the opposite mistake, though less obvious, is just as costly: waiting too long to mark down a product, and ending up with unsellable inventory that is ultimately destroyed, donated, or liquidated at a total loss.

According to the State of Fashion study by McKinsey & Company (BoF-McKinsey), 30 to 40 percent of the clothing produced is sold at a discount or marked down—or never sold at all—representing an estimated loss of between 70 and 140 billion dollars worldwide.

The textile industry is the most extensively documented in this area, but this approach applies to any category with a limited lifespan: end-of-generation electronics, seasonal products, and food items with a short shelf life.

The Five Key Elements of a Well-Managed Markdown Policy

A well-developed markdown policy is not simply a matter of “lowering the price when items aren’t selling.” It is based on five key factors:

• Turnover rate: measuring how quickly inventory is actually selling, category by category — see our article on the trade-off between margin and turnover rate.
• The timing and extent of markdowns: deciding when to mark down items—and by how much—without winging it—see our article on creating a markdown grid.
• Discontinued items and slow-moving inventory: Identify items that are no longer selling before they become a problem—see our article on dealing with unsold inventory before it becomes a costly issue.
• Forecasting Remaining Inventory and Seasonality: Estimating How Much Will Remain to Be Sold at the End of the Season — see our article on forecasting remaining inventory.
• Governance: Establish clear rules to ensure that markdowns remain a managed process, not a panic reaction at the end of the season.

How It Works, in Plain Terms

What Booper Brings to the Table

The GENIUS Promotions module on the Booper platform handles promotions and clearance sales alongside standard pricing—following the same approach as the other GENIUS modules: combining AI with business rules rather than replacing human judgment with blind automation.

The goal is not to have a tool that decides on price reductions on its own, but rather a tool that provides early warnings, quantifies the impact of a price reduction scenario before implementing it, and allows a category manager to approve it.

Frequently Asked Questions

The questions we're asked most often before getting started.

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Sources: Retail Dive, “Markdowns cost retailers $300B last year” — retaildive.com · McKinsey & Company, “The State of Fashion 2025” (BoF-McKinsey) — mckinsey.com · Booper product data (GENIUS Promotions module; Coopérative U and Barbotteau Group case studies published by Booper).