Liquidation Tactics for the Holiday Hangover

Jan 29, 2008 11:19 PM  By

Many retailers fell well short of holiday sales plans that were fairly conservative to begin with. What does that mean? Challenges from 2007 are extending into this year during the final phase of the product life cycle: markdown and liquidation of unsold merchandise.

We’ve found that most multichannel merchants were sticking fairly closely to traditional liquidation strategies, namely clearance and sale promotions.

Marking down products that didn’t sell well is a good way to recoup some of your investment. But keep in mind that for a merchant working on a 54% gross margin, a 10% markdown would reduce gross margin by almost 5%. So for catalogers with net operating profits ranging between 4% and 10%, exceeding a markdown plan can really hurt the bottom line.

Let’s look at the typical catalog sale strategies.

Traditional after-Christmas- sale digest book. All items are on clearance or discounted substantially. Entire categories (such as greeting cards) are often shown in the catalog, which seems to be a waste of expensive space. The company’s Website mirrors the sale catalog during this selling period.

“Hybrid” sale catalogs. Apparel merchants typically use this approach. These full-size books are promoted as a “sale event” on the cover, but the catalog combines offerings of sale prices on seasonal categories with full pages of regular priced, higher-margin basic merchandise.

Merchants using this strategy typically ensure that their Website layouts and featured items essentially mirror the print catalog, with equal emphasis on the after-Christmas sale and regular-priced merchandise.

Pre-Christmas sale events. A few catalogers showed some creativity this year by beginning their sale events roughly two weeks before Christmas—presumably a reflection of the difficult business climate. One example is Smith & Hawken, which mailed a digest-size, 36-page book to be in-home Dec.17.

Many companies also offered “last-minute gifts” during the last week before Christmas with good success.

Multichannel strategies. Most merchants mailed out catalogs that reflected their Website home page at the time. And virtually all retailers used their Websites to promote off-price and sale merchandise.

But two retailers took an effective and differentiated approach by channel to post-Christmas clearance.

Pottery Barn mailed out a 120-page catalog immediately after Christmas; the merchandising thrust emphasized new products for spring and bold, bright colors. A call-out at the bottom of the front cover announced some sale pages at the back of the catalog.

But the layout and emphasis for Pottery Barn’s online store at the time of the catalog drop was the exact reverse: a hard-sell banner headline announcing “Winter Sale: Save up to 75% on select items.”

The sale pages in the print catalog were assorted to cover all major product categories, with messages on each page directing the customer to “more great items at potterybarn.com.”

The merchant is using an expensive print catalog to sell higher-margin products and also build the Pottery Barn brand. Simultaneously, an e-mail campaign—combined with sales pages in the print catalog—drives customers to the Pottery Barn Website that liquidates clearance and seasonal merchandise.

General merchandise giant Target was perhaps the first to “come clean” about soft sales with its announcement on Christmas Day that it would probably miss its December sales plan.

That same day, Target launched an e-mail campaign with a one-word title, “Clearance!” which promoted the storewide clearance sale with savings up to 50%. But Target’s retail print circulars stuck to its proven strategy of promoting key volume drivers—such as DVDs and consumer staples—highlighting key price points rather than a percentage discount.

Even when liquidating holiday overstock, you can effectively use channels to complement each other, rather than duplicating efforts in two or three sales mediums.

For more on liquidation, look for Curt Barry’s article in the February issue of MULTICHANNEL MERCHANT.

Curt Barry is president of F. Curtis Barry & Co. (www.fcbco.com), a multichannel operations and fulfillment consulting firm specializing in systems, warehouse, call center, inventory, and benchmarking.

Related Articles:

Give Me the Goods
Clearing the Shelves