McKinsey: Why Markdowns Matter More Than Ever

Many US retailers are reducing prices to clear excess inventory. Smart markdown strategies will make a huge difference to their bottom lines.

The US consumer, just like the US economy, has been anything but predictable over the past few years—and the rapid changes have kept retailers on their toes. After the initial shock of COVID-19, which in early 2020 forced stores to close and caused demand for some product categories to plummet, consumer spending recovered relatively quickly, rising to record levels later that year. The recovery continued into 2021 as consumer sentiment and spending spiked in tandem, resulting in consumer demand that exceeded retailers’ stock levels.

But new challenges arose in early 2022—most notably, inflation and growing fears of recession—and, so far, there’s no end in sight. Spending growth has slowed, yielding the opposite of what happened in 2021: this time, there’s more stock than demand. Many retailers entered this holiday season with high inventory levels and declining profitability; most will need to slash prices to move excess inventory out of stores. In the coming months, getting markdowns right will be critical.

Read the full article here.