To everything there is a season – including merchandise. The viability and scalability of a product is not infinite. Even the same product tweaked and improved is still a different product. And because slow-moving merchandise does not magically disappear from warehouse shelves to make room for newer, hotter items, it is key (and sometimes even a paid position) to manage the product lifecycle to maximize profit and sustain revenue.
Business as Usual
Typically, unsold merchandise sees two or three rounds of discounting before it is written off and liquidated. While this strategy and others like it are effective for reducing inventory, there are other ways to improve your sell-through rate and protect profit.
Building a strategy around the entire sales cycle lets you test, plan and make data-driven decisions that enable smarter buying, reduced markdowns and could improve profitability by 300%.
A Smarter Sale Event Strategy
Planning pre-sale events at the beginning of the cycle, friends and family events in the middle, and pre-liquidation private sales at the end is key to shoring up revenue and profit in these unpredictable times. Let’s look at an example:
You order 1,000 units and plan on a 50% gross margin at a $100 Average Unit Retail Cost (AUR) and $50,000 Cost of Goods Sold (COGS)
Now let’s look at three possible scenarios for that product’s lifecycle.
- Typical lifecycle plan – without pre-sale event; without final sale event
- A lifecycle plan with a pre-sale event only
- A lifecycle plan with pre-sale event, friends and family event and a pre-liquidation private sale event
1. Typical product lifecycle plan
In this scenario, units arrive and, due to product novelty and great marketing, you sell 1/3 of your units at full price. As the product lifecycle levels out at the maturity phase, you sell 1/3 of the remaining units at a discount. Often the final 1/3 units will go unsold and must be written off to make way for a new item.
This approach would generate $53,280 in revenue and 7% profit.
2. Adding a pre-sale event
A pre-sale event lets you sell items and realize revenue before the product hits your warehouse. In addition to revenue, there are numerous benefits to offering a pre-sale.
- Ensure your buying strategy aligns with customer demand
- Market research
- Inform online merchandising
- Reinforce scarcity and exclusivity with your most loyal fans
- Reduce aged inventory
Adding a presale reduces unsold inventory at the end of the product lifecycle. In our scenario, if a presale enables even an additional 10% full-price sell-through, that’s a total of $56,610 in revenue and 13% net profit.
3. Adding a pre-sale and pre-liquidation private sale
A higher velocity of full price sell-through reduces the amount of product that needs to be sold before being written off. So, controlling the final sale audience, markdowns and timing protects your brand reputation and profit. Adding a friends and family event and a pre-liquidation private sale event to a presale strategy would generate $60,606 in revenue and 21% net profit.
As uncertainty continues swirling with little sign of stabilizing, proactive and thoughtful product lifecycle strategies are your hedge against external unpredictability.