Markdown pricing

Markdown pricing is the practice of systematically reducing a product's price over time, typically to clear seasonal, slow-moving, or excess inventory before it loses further value. It is one of the most visible pricing decisions in retail because customers see the cuts directly, and it is also one of the most consequential for margin, since it applies to a meaningful share of most retailers' annual unit volume, from fashion and footwear to electronics and seasonal home goods.

How markdown pricing works

Retailers usually plan markdowns in stages: a first cut of 20-30% when sell-through starts to lag the plan, a second deeper cut if the item is still not moving, and a final clearance price to liquidate remaining stock before a new season arrives. The timing and depth of each cut is driven by sell-through rate, weeks of supply remaining, and how much shelf or warehouse space the item is tying up. Some retailers also factor in competitor markdown activity, since holding a full price while competitors are already discounting the same item can stall sell-through even further.

Good markdown pricing balances two competing goals: cutting early enough to actually move inventory, and holding price long enough to protect margin, which is why many retailers now use data-driven triggers, like a sell-through threshold, instead of a fixed weekly calendar. Some categories, like fast fashion, need aggressive early cuts, while others, like durable home goods, can tolerate a slower, shallower markdown schedule. Store-level stock differences can also mean the right markdown timing varies by location, not just by product.

Example

A sporting goods retailer stocks winter jackets at $120. By late January, sell-through is behind plan, so the price drops to $90. Two weeks later, with 40% of stock still on hand and spring resets approaching, it drops again to $60 to clear the remaining units before new inventory arrives, trading additional margin for freed-up floor space and cash. A smaller, earlier cut the following season reduces the final clearance depth needed, since the buyer adjusts the original order quantity based on this season's markdown pattern.

Why it matters for retailers

Markdown pricing directly determines how much margin a retailer recovers from slow-moving stock versus how much cash and space stays tied up in it, making the timing and size of each cut one of the highest-leverage pricing decisions in seasonal retail. Getting it wrong in either direction, too early or too late, has a direct and measurable cost, and small improvements compound quickly across a full seasonal assortment spanning thousands of individual SKUs.

How Retailgrid helps

Retailgrid's markdown and clearance tools recommend markdown timing and depth based on live sell-through and stock data rather than a fixed calendar, with every recommendation fully explainable back to the underlying numbers. Agentic pricing can execute staged markdowns automatically within guardrails a merchandiser sets, and dynamic pricing keeps markdowns aligned with competitor moves in the same category, so no single SKU is left holding full price after the rest of the market has already moved.