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Smart Retail Markdown During COVID-19 Introduction | Markdown Mania | Discounted Assortment |

Curated Promotions | The Right Channel | Conclusion

Written by Ashley Looi Yen Wei, Business Intelligence Analyst

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IntroductionKey Insights• Disruption to Markdown Timing: Farfetch vendors carried out more

markdowns in April this year to clear off excess inventory broughton by Covid-19.

• Product SKU-level Performance Tracking: Monitoring productmovement at a granular level enables tactical markdown executionswhile protecting profit margin.

• Curated Promotions: A disciplined and personalised approach helpsto offload inventory while keeping customers engaged.

Discount Driving ForcesThe US economy is largely driven by consumer spending, whichaccounts for 70% of its GDP. As the coronavirus shows no clear signs ofslowing down in the US, jobs are no longer secure with consumerspending severely impacted. Approximately 20.5 million jobs were lostin April, putting the US unemployment rate at 14.7% - the highestsince the Great Depression.

Business closures and layoffs have caused the steepest monthly drop inUS consumer spending ever recorded at 7.5% – 3.6 times higher thanthe previous record of 2.1%.

A Glut in InventoryPhysical store closures and supply chain disruptions are causing asurplus in inventory. Being confined to solely digital channels, retailersare unable to drive out as much inventory compared to pre-crisisconditions. Instagram @yoox

Moreover, some retailers have adjusted their Spring/Summercollections, prioritising stock that will sell now to accommodatecustomer buy-now-wear-now preferences, while delaying launchtimings for products that can be introduced at a later date.

Shifts in Consumer Spending and Behaviour32% of US citizens have experienced negative impact towards theirincome due to Covid-19 and expect to decrease spending on apparelby 51% in the coming weeks. Cash-strapped consumers are nowshifting towards a new discount mindset as retailers delve into deepdiscounting to overcome a glut in inventory.

With the current climate, how can retailers markdown effectively andstill protect profit margins?

This report aims to identify key lessons at leading brands and share howto execute smart markdown without hurting profit deeply and erodingbrand equity.

More than 1,330,000 womenswear data points were screened fromMarch 2019 to May 2020 across the US market full-price and off-pricechannels in the luxury and premium segments – including Farfetch,Net-a-Porter, Yoox and The Outnet. Direct-to-consumer (DTC)brand, Everlane, was also analysed to uncover how smaller playersmarkdown differently from the bigger brands.

Introduction (cont’d)

All data used in this report comes from products retailing online astracked by Omnilytics, unless otherwise mentioned.

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Change in TimingCovid-19 has caused a disruption in Farfetch’s markdown timingbringing reductions forward to April, as a consequence of the surge innumber of Covid-19 cases in the US. The retailer launched 7,108 firstdiscounts in April, three times higher than the year before.

Everlane was not exempt from disruptions to the markdown calendar.Prior to this, the brand had not launched any first discounts on itsSpring/Summer collection. 209 first discounts have been executedsince March this year, higher than 2019 and increased in frequency.

Covid-19 has brought on a disruption to markdown timing in brands.Introduction of first discounts has not just been brought forward, it hasalso increased in magnitude compared to last year.

Markdown ManiaC H A R T 1 : F A R F E T C H F I R S T D I S C O U N T B Y M O N T H

C H A R T 2 : E V E R L A N E F I R S T D I S C O U N T B Y M O N T H

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Increasing DiscountedProductsThe retailer previously offered discounts for only 81,878 items inMarch to May last year, which increased to 137,285 items this year.The large amount of markdowns garnered an uplift in sell-out rate to30% against last year’s 21%. The bulk of discounts were offered inApril, when up to 82,000 items were discounted weekly.

Industry LeadersPrada and Fendi have seen great success throughout this crisis. Bothbrands managed to secure sell-out at 80% and 84% respectively,despite having discounts on less than 15% of their entire assortment.

The two industry leaders achieved sell-out rates on par with, andbeyond other brands retailing on Farfetch – where an average 58% ofitems were discounted.

Brands should not wait to execute markdowns. Identify which productsfulfil the ‘buy-now-wear-now’ preference of consumers and executemarkdowns immediately to overcome overstocking issues. Brandsshould also look to industry leaders like Prada and Fendi to observetheir markdown strategies.

Markdown Mania (cont’d)

C H A R T 3 : F A R F E T C H Y E A R - O N - Y E A R D I S C O U N T M O V E M E N T

Mar – May 2019

Mar – May 2020

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Apr 11Apr 4Mar 28Mar 21Mar 14Mar 7 Apr 25Apr 18 May 9May 2

Apr 9Apr 2Mar 26Mar 19Mar 12Mar 5 Apr 23Apr 16 May 7Apr 30

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Most Discounted CategoriesThe categories with the most discounts were Tops, Outerwear andDresses in apparel, followed by Shoes, Bags and Accessories in non-apparel. A deeper dive into the categories in apparel and non-apparelrevealed that luxury and premium retailers are focusing markdowns onSpring/Summer collections.

Farfetch and Net-a-Porter drove discounts on the Blousessubcategory, consisting of ruffles and floral patterns. Sandals & FlipFlops were frequently seen in the non-apparel discount assortment,where 55% of the items had open toes.

Discounted Assortment

23%

23%

21%

11%

7%

15%Apparel

Tops

Outerwear

Dresses

Pants & Leggings

Skirts

Others

C H A R T 4 : D I S C O U N T A S S O R T M E N T F O R L U X U R Y A N D P R E M I U M S E G M E N T

135,431 SKUs47%

33%

8%

6%6% Non-Apparel

Shoes

Bags

Accessories

Jewellery

Eyewear

56,868 SKUs

Most Discounted Styles in Tops

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Most Discounted Styles in Shoes

Targeted DiscountingUnlike large retailers, Everlane practiced targeted discounting – wheredifferent discount strategies are applied to each category. Smallerbrands like Everlane have the ability to practice targeted discountingbecause they have more control over pricing and have more agility. Thisprovides DTC brands with better capacity to adapt to the market thanlarger brands.

A deep dive analysis shows that Everlane is focusing on moving stockfor Dresses. The category had the highest percentage of discountedproducts at 60%, twice as high compared to Tops, Pants & Leggingsand Jeans.

Brands should take a deeper dive into monitoring performance, notjust at category level, but all the way down to SKU-level performancetracking.

Discounted Assortment (cont’d)C H A R T 5 : D I S C O U N T B R E A K D O W N B Y S U B C A T E G O R YM A Y 2 0 2 0 • S T R A T E G Y

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Compared to the same period last year for March to May, 878 newbrands have offloaded their markdown inventory on the off-pricechannels Yoox and The Outnet. The 13% uplift in brand portfolio with45% more SKUs, signals the need for luxury and premium brands toexecute markdowns amidst the crisis.

Apart from the expanded brand portfolio, the discount assortment onthe two off-price channels has grown by 56% as brands struggle toclear the glut in inventory.

Wide discounting on full-price channels like Farfetch and Net-a-Portercan erode brand equity. Hence, it is important to identify off-pricechannels like Yoox and The Outnet, where the customer base isdifferent. Luxury and premium brands should consider movingmarkdown inventory to off-price channels to safeguard brand imageand move inventory at a faster rate.

The Right Channel C H A R T 6 : Y E A R - O N - Y E A R P R O D U C T O V E R V I E W F O R O F F - P R I C E C H A N N E L S

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Retailers have launched promotions through creative masking ofdiscounting to entice cash-strapped customers.

Product-Driven OffersNet-a-Porter attracted customers by offering 15% off on selected newarrivals for a style refresh. Yoox offered 20% discount on denim, T-shirts and sneakers to entice customers to spend on seasonlessproduct. This offer tapped into the opportunity of consumers wantingcore product.

Following Covid-19 cases picking up in the US during mid-March,Everlane launched promotions featuring a different product eachweek. Featured products included its jeans, performance leggings andday glove. The weekly promotions were meant to generate buzz andinterest leading up to Everlane’s first site wide sale at 25% off.

PR MessagingFarfetch utilised the angle of protecting smaller brands by launchingthe #SupportBoutiques campaign. The retailer showed its support toboutique brands by offering up to 25% discount to encouragecustomers to purchase products from said boutiques.

C H A R T 1 : B R A N D P O S I T I O N I N G A N D P E R F O R M A N C E B Y S E G M E N T

Curated PromotionsV I S U A L M E R C H A N D I S I N G F O R C U R A T E D P R O M O T I O N SM A Y 2 0 2 0 • S T R A T E G Y

Instagram @everlane

Main FindingsDisruption to Markdown Timing: Luxury and premium brandshave made adjustments to their markdown calendars, withincreased first discounts in April.

Meanwhile, Everlane launched markdowns during theSpring/Summer season for the first time. The number of firstdiscounts in March to May increased tremendously comparedto the same period last year.

Targeted Discounting: Smaller brands are more agile and havethe ability to pivot discounting strategies compared to largerbrands with more complex decision making hierarchies.

Everlane executed different percentages of discounted itemsfor each category. Dresses had the highest discounting at60%, significantly higher than other categories.

Curated Promotions: As consumers become cash-strapped,discounting will become commonplace – leading to markdownmania. Retailers have to step it up to be more creative in theirpromotions to foster the enthusiasm of customers.

Farfetch launched a campaign spotlighting smaller boutiquesthat are worse hit by Covid-19 than bigger brands. Everlane’sweekly promotions on featured items garnered high interestthrough to its first site-wide sale at 25% off.

Next Steps for BrandsMonitor Consumer Demand: Blouses and Sandals & Flip Flopstook the lead in discounting, aligned with the current buy-now-wear-now consumer preference around Spring/Summerstyles. Brands should offer shallow discounts on styles whichare already driving demand.

Brands need to conduct in-depth analysis on the performanceof styles to optimise stock levels. Opportunities can be seizedby implementing deeper markdowns on downtrending stylesand holding off on or offering shallow markdowns for thosewhich are uptrending.

Tactical Markdown Strategies: In this crisis climate, a high-level performance analysis is insufficient – performance mustbe scrutinised down to SKU-level.

The data and insights gained from monitoring performanceshould guide brands into launching tactical markdownstrategies such as first discounts, priority by seasonality andSKU-targeted discounting. Next, layer the markdownmechanism with smart and personalised messaging.

Moving Stock to Off-Price Channels: Brand equity is not easilyestablished and can be jeopardised by over-discounting onfull-price channels. Brands need to consider movingmarkdown inventory to off-price channels to protect brandimage.

ConclusionM A Y 2 0 2 0 • S T R A T E G Y

Metric Description

Assortment SKUs Count The total count of stock keeping unit (SKU) i.e. the number of styles that a brand offers. In the report context, it is the total product count within a data set.

New-In The products that are newly added to the retail website within the timeframe selected.

New-In Rate

The number of new products launched by a brand within the timeframe selected. It is calculated by dividing the new-in count over the total product count within a data set.

New-In Contribution % Calculated by dividing the number of new-in product count over the total new-in count within a data set.

Sell-Out A product registers a sell-out event when it is indicated as out-of-stock or no longer published on the website.

Sell-Out Contribution % Calculated by dividing the number of sell-out product count over the total sell-out count within a data set.

Percentage Point Variance (New-In vs. Sell-Out)

Calculated by subtracting the new-in contribution with sell-out contribution on unit percentage difference. Metric is used to indicate sign of potential missed opportunities and overstocking.

Definition of Key Metrics

Get in touchOmnilytics is a fashion analytics company that helps brands and retailers – born to make data accessible and

insights actionable so that businesses can make decisions with confidence and speed. At the core of what

Omnilytics does is the belief that information is power; pairing deep industry expertise and ground-breaking

technical innovation to bolster businesses’ agility with data-driven insights.

Find out more

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Luxury: Managing Newness Amidst the COVID-19 Crisis

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