# Promotions and markdown strategy without margin erosion
A fashion buyer orders 10,000 units of a linen blazer for spring. By late June, 4,000 remain on the shelf. Every week they sit there, they lose relevance, and the fall collection needs the floor space. This is the moment where most retailers panic and slash 50 percent across the board. The disciplined ones run a cascade: a sequence of planned, escalating markdowns that clears inventory while protecting as much margin as possible.
The difference between those two approaches is often the difference between a profitable season and a break-even one.
A markdown is a permanent reduction in the selling price of an item, usually to clear inventory. It differs from a promotion, which is a temporary discount meant to drive traffic or volume, after which the price returns to normal.
That distinction matters. Confusing the two is where margin erosion begins.
Markdowns are not a sign that buying went wrong. In fashion, perishability is built in. Trends fade, seasons end, and unsold stock has a shelf life measured in weeks. The goal is not zero markdowns. The goal is to plan them so you capture the highest willingness to pay from each customer segment before you drop the price.
Think of it as harvesting demand in layers.
Return to the linen blazers. A well-run end-of-season cascade might look like this.
Full price (weeks 1 to 8). You sell to the customers who want the item most and will pay top dollar. This is your highest-margin window. Protect it. Do not discount early just because a competitor did.
First markdown (around 20 to 30 percent). Sales have slowed. You reduce price to reactivate the next layer of demand: shoppers who liked the blazer but hesitated at full price. This is often the most profitable markdown because it moves meaningful volume while retaining solid margin.
Second markdown (40 to 50 percent). The remaining stock is now competing against incoming fall product for attention and space. You go deeper to accelerate sell-through.
Final clearance (60 percent and beyond). Whatever is left must go. The carrying cost (storage, tied-up cash, floor space) now exceeds the value of holding out for margin.
The art is in the timing and the depth of each step. Move too early and you leave money on the table. Move too late and you clear at deeper discounts than you needed.
Price elasticity of demandPrice elasticity of demandHow sensitive demand is to a price change. High elasticity means customers react strongly to price increases.View full definition → measures how much quantity sold changes when you change price. If a 10 percent price cut lifts unit sales by 30 percent, demand is elastic (sensitive to price). If that same cut lifts sales by only 5 percent, demand is inelastic (insensitive to price).
This single concept should drive every markdown decision.
Elastic items respond well to discounts: the volume gain more than compensates for the lower price. Basics, commodities, and heavily comparison-shopped goods tend to be elastic.
Inelastic items do not. Discounting a slow-moving inelastic item just donates margin to customers who would have bought anyway, or fails to move the needle at all. A distinctive designer piece with no direct substitute is often inelastic.
The practical takeaway: measure elasticity per category, not for the store as a whole. Denim behaves differently from occasionwear. A blanket 30 percent off treats them as identical when they are not.
For a clear primer on the mechanics, the Khan Academy lesson on price elasticity is free and non-technical.
Markdown timing should be driven by data, not by the calendar or by nerves.
The key metric is sell-through rate: the percentage of received inventory sold in a given period. If you received 10,000 blazers and sold 6,000, your sell-through is 60 percent.
Retailers set target sell-through curves before the season begins. A typical rule might be: we want 70 percent sell-through by week 8 at full price. If actual sell-through tracks below the curve, that is your signal to trigger the next markdown layer, sooner and possibly deeper.
This is why modern retail leans on demand forecasting tools. A simple version of the logic:
weeks_of_supply = units_on_hand / avg_weekly_sales
if weeks_of_supply > season_weeks_remaining:
trigger_markdown() # you will not clear at current paceIf you have 4,000 blazers left, are selling 300 a week, and have 8 weeks before fall takes the floor, your current pace clears only 2,400 units. You are 1,600 short. That gap, not a hunch, tells you to act.
🎬 [VIDEO: "How Retailers Set Prices and Markdowns" — youtube.com — a short explainer on retail pricing and markdown logic for non-specialists]
Here is the discipline that separates strong marketers from reactive ones.
Demand-generating deals bring in customers or volume you would not otherwise have captured, or they clear inventory that would otherwise be written off. A first markdown that reactivates hesitant shoppers is demand-generating. A loyalty-only early access sale that pulls forward committed buyers can be too, if it builds retention.
Margin-destroying reflexes are discounts triggered by anxiety, habit, or competitor mimicry, with no evidence they change behavior. Signs you are in reflex territory:
That last point is the quiet killer. When customers learn that everything eventually goes on sale, they stop buying at full price. You erode your highest-margin window permanently. Some retailers have discovered this the hard way and moved toward "everyday" pricing to rebuild trust in their price integrity.
Before approving a promotion, ask three questions:
1. Incrementality. Will this deal generate sales that would not have happened otherwise, or just discount sales I already had?
2. Elasticity. Is this category price-sensitive enough that the volume lift covers the margin given away?
3. Signal. What does this teach customers about my future pricing?
If a proposed promotion fails all three, it is a reflex, not a strategy.
Knowledge check
1. What is the fundamental distinction between a markdown and a promotion?
2. According to the lesson, what is the primary goal of a well-planned markdown cascade?
3. Why does the lesson describe the first markdown (roughly 20-30 percent) as often the most profitable markdown?
4. Select ALL correct answers about why markdowns should be viewed as a strategy rather than a failure of buying.
Select all the correct answers.
5. Select ALL correct answers describing disciplined markdown practice as opposed to panic discounting.
Select all the correct answers.
Strong markdown management starts before the season, not at the end of it.
Pre-season. Set target sell-through curves per category. Decide the planned cascade depth and the sell-through thresholds that trigger each step. Segment inventory by expected elasticity.
In-season. Monitor sell-through weekly against the plan. Trigger markdowns based on the gap between your pace and your remaining time, not on competitor noise.
Protect the full-price window. Resist early discounting on items still selling to plan. This is where most of your margin lives.
Differentiate by item. Deep clearance on the true laggards. Light or no markdown on inelastic pieces still moving at full price. One blanket percentage across the store is almost always leaving money on the table.
Review after the season. Compare planned versus actual markdown depth and timing. Feed the learnings back into next season's buying and curves. This closed loop is what compounds over time.
The retailer who runs this loop consistently will, over several seasons, carry cleaner inventory, protect more full-price sales, and clear laggards at shallower discounts than the competitor who reacts on instinct.