Selling off inventory without selling it at a loss: the Markdown method
A markdown is a permanent price reduction and should not be treated as a promotion. It is triggered based on projected remaining inventory—which can be determined as early as the first few weeks of sales—rather than on the start date of the sales event.
The appropriate markdown strikes a balance between profit margin and turnover rate by factoring in the cost of carrying inventory and the residual value of remaining stock. It is determined on a per-item and per-store basis, based on an acceptable residual amount set in advance.
Aging inventory doesn't just take up space—it eats into your profit margin every week it remains unsold.
Markdown—the final price reduction for a product at the end of its life cycle—addresses this urgency. If done poorly, it sells the product off too early or too late. Here’s what makes the difference.
How can you sell off your inventory without sacrificing your profit margin?
A markdown is a permanent price reduction applied to inventory that must be sold before a specific deadline: end of season, end of collection, or expiration date. The price will not go back up.
Short answer: Cut back early, in small amounts, and in stages guided by actual demand, rather than late and drastically. A late cutback hits demand that is already fading.
- Trigger based on the projected remaining inventory, not on the sale date.
- Set the depth based on the rotation of the reference, not its category.
- Differentiate by store: Remaining inventory is never distributed evenly.
- Focus on the profit margin in euros, not the percentage displayed in the window.
Markdown or promotion: two decisions that aren't handled the same way
A promotion is temporary and reversible: it aims to drive traffic or boost sales volume, after which the product returns to its regular price. A markdown is permanent: it aims to clear out inventory before it loses its value.
Confusing the two leads to two symmetrical mistakes. Treating a markdown as a promotion means underpricing it. Treating a promotion as a markdown damages the price image of a product that didn’t need to be sold off at a discount.
However, both decisions relate to the same article. A promotion launched shortly before the sales lowers the 30-day reference price and reduces the discount that can be displayed afterward.
Remaining inventory: Markdowns are decided before the season begins
Remaining inventory is the quantity that will remain unsold by the deadline if sales continue at the current pace. This is a forecast, not a final tally at the end of the season.
When a team discovers in the final week that a third of the inventory remains, the problem didn't start that week. It originated at the time of purchase, based on an overly optimistic forecast, and was evident from the very first weeks of sales.
A collection of 1,000 pieces for a twelve-week season. After six weeks, 300 pieces have been sold, at a rate of 50 per week.
At this rate, another 300 units will be sold: 400 will remain, or 40% of the initial inventory. This is the projected remaining inventory.
With six weeks to go, there's still time to close the gap a little. With two weeks to go, that same gap can only be closed with a major turnaround.
Seasonality, Events, or Drift: Three Signals Not to Confuse
A sales variance does not always have the same cause. Normal seasonality in the category, a one-time event (weather, holiday, competitor promotion), and a sustained shift in demand call for three different responses.
The most costly mistake is to mistake a deviation for a seasonal trough: you wait, and the residual grows.
A good forecast does not eliminate markdowns. It simply shifts the timing of when they are decided—to a point when there are still enough weeks left to apply small markdowns. This is the exact opposite of a stockout, which results from an underestimated forecast.
Flow Rate and Margin: The Real Trade-off
The turnover rate measures the portion of inventory sold over a given period, relative to the rate at which the entire inventory would need to be sold to clear it by the deadline. It is this rate—for each SKU—that determines whether action is needed.
Maintaining the price protects the unit margin but slows sales. Discounting speeds up sales but reduces the margin. The right choice depends on three variables that are rarely considered together.
- The cost of holding inventory: tied-up capital, storage, retail space, obsolescence. It accrues every week that the product remains unsold.
- The exit value: the proceeds from, or the cost of, the remaining inventory if it is sold at a discount, donated, or recycled.
- Price elasticity of demand: without it, it is impossible to know how low a price can be set without undermining profitability.
An item purchased for €20 and sold for €50. There are 400 units left, with six weeks remaining until the end of the season. At full price, 40 units are sold each week.
Maintain the price: 240 units sold, €7,200 in profit, then 160 units sold off at €15, resulting in a loss of €800. Net profit: €6,400.
Offer a 20% discount right away, bringing the price down to €40: if demand rises to 65 units per week, 390 units will be sold. Total revenue: €7,750, despite a lower profit margin per unit.
Wait four weeks, then mark down by 50%: €4,800 at full price, then 240 units at €25 over two weeks, totaling €1,200. Total: €6,000—the worst of the three options.
The reaction volumes are fictitious. What is not fictitious: the late submission applies to a request that has already declined, and the margin that has elapsed depends as much on timing as on depth.
Our belief: Aiming for 100% sales is rarely the right goal. The last few units sold often cost more in discounts than they bring in, whereas a small remaining inventory already has a planned outlet.
Differentiate by reference and by store
A discount set by category and across the entire network is an average discount. It sells off the items that are still moving but isn't enough to clear out the ones that aren't selling.
The same logic applies across stores: leftover inventory tends to accumulate where a particular item didn't sell well. A nationwide price reduction results in unnecessary discounts everywhere else.
This case concerns pricing strategy, not markdowns. It does, however, shed light on the issue of decision-making.
An analysis that shows where the profit margin really lies.
The retailer thought it knew its market positioning. The analysis compared its prices to the market, weighted by sales volume, and revealed the margin gap between products exposed to competition and the others.
- Issue
- Assess price positioning relative to the market and identify the " Markup."
- What Has Changed
- An analysis of sales history, a weighted index, and then data-driven management.
These products account for 80% of sales across the entire network.
Recommended reading:the price diagnostic
Sales Management · Network of 90 stores. Case study written by Booper based on an actual client project; the client’s identity has been anonymized.
Our take on markdowns: when a small portion of the product lineup accounts for the bulk of sales, the remaining inventory sits largely in the long tail. That’s where decisions must be made with the greatest precision.
In highly seasonal categories, such as home improvement and gardening, this fine-tooth comb often makes the difference between a smoothly managed end to the season and unsold inventory carried over to the following year.
The Cost of a Poorly Judged Price Markdown
The most commonly discussed mistake is selling off inventory too early. The opposite mistake—waiting too long—is less frequently mentioned in reports, but it often results in selling at a loss, giving away inventory, or letting it sit as dead stock.
sales represented by the 2.5 to 5 billion surplus garments produced worldwide in 2023.
(BoF-McKinsey, The State of Fashion 2025)
The textile industry is the best-documented sector, but this principle applies to any category with a limited lifespan: seasonal products, end-of-generation electronics, and products with a short shelf life.
For items that have already been removed from the shelves, see how to identify discontinued collections and dormant inventory.
Our position: Set the acceptable residual, not the discount
Many retailers base their markdowns on a percentage scale. We believe the useful rule lies elsewhere: how much inventory are we willing to keep at the end of the season, and for what purpose?
Once this target residual inventory level is set, the markdown becomes a calculated outcome that varies by product line and by store. For information on how to set the markdown tiers, see the schedule and markdown depth.
This rule only makes sense if the markdown also takes into account promotions and the regular price. That is why we advocate for combining prices, promotions, and markdowns into a single tool.
The GENIUS Markdown module, featured on our Markdown page and at markdown, forecasts the remaining inventory for each SKU and flags those that fall short of their sales targets.
Each proposed price tier is simulated before being implemented: expected impact on sales, margin, and remaining inventory, by SKU and by store.
The 30-day reference price is calculated automatically. The final decision rests with the category manager, within the margin limits set by the retailer.
The residual projection is based on the same building block as our sales forecastingsolution: a sales history, adjusted for stockouts, which is used for both ordering and markdowns.
Frequently Asked Questions
A promotion is a temporary and reversible price reduction intended to drive traffic or sales volume. A markdown is a permanent price reduction applied to inventory that must be sold by a deadline.
The success of a promotion is measured by incremental sales. The success of a markdown is measured by the margin realized and the remaining inventory.
By starting early, with small, gradual reductions, rather than waiting until late and making large cuts. The trigger is the projected remaining inventory for each SKU, not the start date of the sales.
Depth is calibrated based on actual turnover and varies by store. The key metric is the profit margin in euros, not the discount rate.
This is the amount that will remain unsold by the deadline if sales continue at their current pace. It is projected starting in the first few weeks of sales by comparing available inventory to the expected sales trajectory.
The challenge lies in seasonality: it is important to distinguish between the category’s normal pattern, a one-time event, and a sustained shift in demand.
Not necessarily. The last few units often cost more in discounts than they bring in, especially when the price reduction applies to all remaining inventory on the shelves.
It is better to set an acceptable residual amount, with an outlet planned in advance (secondary channel, stock clearance, donation), and then calculate the discount needed to achieve it.
Both come at a cost—but in different ways. If you act too early, you’re offering a discount to customers who would have paid full price. If you act too late, you have to offer a much bigger discount to address demand that has already declined.
Errors that are discovered late are less noticeable, since they end up as liquidated assets, donations, or dormant inventory—outside the scope of standard margin reports.
By product, and ideally by store. A healthy category average can mask underperforming products and delay the decision until the point where only a deep discount will still work.
No. It applies to any category with a limited shelf life: seasonal products, gardening supplies, end-of-generation electronics, and products with a short shelf life. The textile industry is simply the best-documented sector.
A solution that projects remaining inventory by SKU, simulates each scenario for sales, margin, and inventory, and leaves the decision up to the team. At Booper, this is the focus of the “markdown” and “ markdown ” offerings.
Sources: BoF-McKinsey, The State of Fashion 2025 (November 2024, 2023 data), mckinsey.com · Booper, product data (markdown, sales forecasts) and anonymized client case study (network of 90 stores). Numerical examples are for illustrative purposes only.
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A franchisor cannot impose a minimum resale price: doing so is punishable by law; the franchisor may only recommend a price or set a maximum. A franchisee’s margin is therefore governed by a documented target, defined by network segment and applied uniformly across each segment.
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