Markdowns That Move: Strategies to Clear Inventory Without Killing Your Cash Flow
Markdowns often feel like a dirty word in retail. Many retailers fear they signal weakness, shrink margins, or train customers to wait for discounts.
But as Paul Erickson, Director of Sales at Management One, and Nate Sheth, CEO of Management One, explained in our recent webinar Markdowns That Move : the right markdown strategy isn’t about slashing prices—it’s about keeping inventory fresh, cash flowing, and customers coming back.
Find out why markdowns are a powerful tool for retailers and the strategic tips to get them right.
Why Markdowns Are Necessary
For many retailers, markdowns represent the single largest expense—often 20% of sales—but one you can budget for and manage strategically.
Margins don’t tell the whole story. If an item is sitting unsold, the loss is already there—you’re just delaying when you recognize it. As Nate Sheth warned, “Stale inventory is like cancer. It metastasizes across your whole business—sales, cash flow, and profitability.”
Used strategically, markdowns free up dollars tied in old stock, keep merchandise moving, and prevent the drag of stale inventory. In fact, Paul Erickson highlights that “Markdowns are not a problem. They are a tool to solve a problem.”
The Root Causes of Excessive Markdowns
Markdowns spiral out of control when inventory decisions drift from reality. Three common pitfalls stood out :
Wide & thin assortments : Too many SKUs, not enough depth. Variety attracts, but too much choice backfires. In one well-known study, shoppers faced with 24 jam flavors purchased only 3% of the time, compared with nearly 30% when offered just 6 options !
Holding inventory too long : Hoping an item will eventually sell erodes value and ties up capital.
Overbuying : Purchasing beyond what traffic can support inevitably leads to clearance racks and margin erosion.
Avoiding these traps requires courage : narrowing assortments, going deeper on proven winners, and moving quickly on underperformers.
How to Markdown the Right Way
Markdowns done right are deliberate, not desperate. Some of the most effective strategies include :
Budget for markdowns : Build them into margin goals and purchasing plans.
Explain why : Don’t just slap on a “SALE” sign which may send the wrong signals to your customers. Instead, label it clearly “End of Season” or “Last Ones” to maintain trust.
Use price points, not percentages : $39.99 feels better than “25% off.” Percentage-off promotions have become an “addiction.” In a 2019 survey, shoppers said it took 40% off or more just to entice them into a store—proof that discounts keep escalating and eroding margins.
Leverage the power of free : Bonus packs or “buy two, get one free” often outperform equivalent discounts. A study found 73% more hand lotion sold when offered as a bonus pack instead of a discount.
Mix markdowns with full-price : Integrating reduced items keeps the floor fresh without creating a bargain-bin feel.
Move fast : Your first markdown is the cheapest if it works ! Lingering discounts only create a perpetual sale image.
From Reactive to Proactive
The biggest difference between markdowns that kill cash flow and markdowns that fuel growth is planning. A proactive strategy :
Sets markdown budgets upfront.
Aligns initial markups to allow for healthy discounts later.
As Nate Sheth summed it up: “Get the old out, bring the fresh in. That’s how you keep growing.” That cycle keeps customers engaged and dollars working harder.
The Takeaway
Markdowns aren’t a sign of weakness—they’re part of running a healthy retail business. Retailers who plan them strategically maintain liquidity, stay nimble, and create more opportunities to capture trends.
At Management One, we’ve seen it across thousands of retailers over 30+ years: when you align your buying, planning, and markdowns, cash flow and profitability follow.
Want to dive deeper? Book a free session with our team to learn how to turn markdowns into a growth tool, not a margin drain.