Speed
A lower price widens the buyer pool, so the same stock sells in fewer weeks. Speed matters most while the season still has demand left in it.
What is a markdown in retail?
A markdown is a permanent reduction of an item's ticket price, taken after the item is already on the floor, to move inventory faster than it is currently selling. It comes out of margin rather than cost — so a markdown is a deliberate trade of planned profit for units and cash before a deadline.
The short definition
A retail markdown is a permanent price reduction taken on inventory that is already priced and selling, to raise sell-through before value drains out of the goods. The ticket is re-priced, the reduction is recorded as markdown dollars, and the margin you keep on the units that follow is called maintained margin.
Markdowns are normal and expected. Seasonal inventory has a shelf life: swimwear in September and coats in March have fewer buyers at any price. The planning question is never "should there be markdowns" but "how deep, how early, and how often" — because those three choices decide how much cash comes back and how much stock is left over.
Why they exist
What a markdown is actually buying
Every markdown spends margin to buy something else. Being explicit about which one you are buying makes the depth easier to argue about.
Cash
Units sitting on a shelf are working capital you cannot spend. A markdown converts inventory back into cash you can put behind the next assortment.
Space and attention
Floor space, storage, and staff attention are finite. Clearing last season's stock is what makes room for goods carrying a full margin.
Markdown, promotion, clearance, shrink
These get used interchangeably in conversation and mean different things on a report. A markdown changes the ticket; a promotion changes the till price temporarily; clearance is the final phase of a markdown cadence; shrink is not a pricing action at all.
| Term | What it means | Note |
|---|---|---|
| Markdown | A permanent reduction of the ticket price | Ticket-level repricing |
| Promotion / discount | A temporary reduction taken at the till | Ticket price unchanged |
| Clearance | The final markdown phase for exiting stock | Usually the deepest break |
| Markdown dollars | Reduction per unit × units sold at that price | Revenue actually given up |
| Markdown % of sales | Markdown dollars ÷ net sales | The reporting measure |
| Sell-through | Units sold ÷ units available in a period | The pace that triggers markdowns |
| Maintained margin | (net sales − COGS) ÷ net sales | Margin kept after markdowns |
| Markdown reserve | Markdown dollars budgeted at plan time | The allowance you plan against |
How a season of markdowns usually runs
A markdown cadence is a schedule of breaks with an exit date. The pattern below is a common fourteen-week seasonal shape — the specific depths and weeks should come from your own sell-through, not from a template — and it shows why the plan is a sequence rather than a single decision.
| Weeks | Phase | Depth off ticket | What it is for |
|---|---|---|---|
| Weeks 1–5 | Full price | 0% | Establish real sell-through against the plan |
| Weeks 6–9 | First markdown | 20–25% | Lift pace while there is still a broad buyer pool |
| Weeks 10–12 | Second markdown | 35–45% | Clear the bulk of remaining units |
| Weeks 13–14 | Clearance | 50–70% | Exit the season at a set date |
Illustrative structure only. Depths and timing depend on your category, sell-through pace, and ending-stock target.
How markdowns are measured
Three numbers describe the result. Markdown dollars is the revenue given up: the reduction per unit multiplied by the units that sold at that reduction. Markdown percentage of net sales puts those dollars over realized sales, which is how markdowns are reported period to period. Maintained margin is the margin left after all of it, and the gap between initial and maintained margin is your erosion in percentage points.
Because the reduction comes entirely out of profit, the share of margin given up is always larger than the depth taken off the price: on a $49.00 ticket with an $18.00 cost, a 30% markdown gives up 47% of the gross profit on every unit that sells at it.
Keep planning
- How to calculate a markdown
The formulas, a free calculator, and the three markdown percentages that get confused.
- Retail markdown planning
The planning process, a markdown calendar by season week, and how cadence gets chosen.
- Markdown vs discount
Why permanent markdowns and temporary promotions are recorded differently.
- Sell-through and markdowns
The pace measure that decides when a markdown is due and how deep it needs to be.
- End-of-season strategy
Sizing the final clearance break and setting an exit date for residual stock.
- Retail markdown strategy
Choosing a cadence that protects maintained margin and still hits an ending-stock target.
Answers
Common questions about retail markdowns
See what a markdown plan does before you take it
Enter units on hand, cost, ticket price, a season end date, and up to six markdown breaks. The planner returns maintained margin, expected ending stock, and cash recovered as a range, with an editable sell-through assumption for every price period.