What is a retail markdown?
A retail markdown is a permanent reduction of a product's original selling price, used to move stock that is selling too slowly or reaching the end of its season. Once taken, the lower price is the new price, available to everyone.
- It is permanent, not temporary: a markdown changes the ticket price for good. The item is not expected to return to its original price, which is what separates it from a promotion.
- Its job is to clear stock: markdowns turn slow or ageing inventory back into cash, free up space and open-to-buy budget for new ranges, and stop stock losing value while it sits.
- It accepts a lower margin on purpose: a markdown gives up some of the gross margin on each unit to avoid the bigger loss of dead stock that never sells at all. Waiting is often more expensive than cutting.
So a markdown is not a failure to be hidden. It is a planned tool for managing a product's exit, and the skill is in how deep it goes and, above all, when it is taken.
Markdown vs promotion vs discount
The words get used loosely, but the distinction matters for both margin and reporting. A markdown is a permanent price change; a promotion or discount is a temporary one.
- Markdown: a permanent reduction of the selling price, typically to clear stock that will not be replenished, such as seasonal or discontinued lines. The price does not go back up.
- Promotion or discount: a temporary price cut to drive volume on products that stay in the range, after which the price returns to normal. A weekend sale or a coupon is a promotion, not a markdown.
The practical consequence is how they hit the books and the plan. A markdown permanently lowers the margin you can recover on the remaining units and is tracked as such; a promotion is a timed investment in volume. Managing an exit and driving a peak are different jobs, and confusing them distorts both.
How to calculate a markdown
There are two numbers people call the markdown, and mixing them up causes confusion. One measures the depth of a single price cut; the other measures markdowns across a whole business.
- Markdown depth: the size of one price cut. Markdown amount is the original price minus the new price; markdown percentage is that amount divided by the original price. A piece cut from 80 to 60 is a 20 reduction, or a 25 percent markdown.
- Markdown rate: the retail-accounting metric. It is total markdown value over net sales for a period, expressed as a percentage, and it tells a merchant how much of their sales came after a price cut. A rising markdown rate signals stock that was bought or priced wrong.
Both matter, for different reasons. Depth is the lever you pull on a single line; the markdown rate is the health check on the whole assortment. When a brand says its markdowns are too high, it usually means the rate, not any single cut.
- Not to be confused with markup: markup is the amount added to cost to reach the original selling price; markdown is the amount taken off that selling price later. They work in opposite directions, and a markdown eats into the margin the markup created, which is why the two are tracked separately.
The main types of markdown
Markdowns come in a few recognised forms, and a plan usually blends them. They differ by what triggers the cut.
- Seasonal and clearance: end-of-season and discontinued stock marked down to clear before the next range lands. The most common driver in fashion.
- Progressive or tiered: a staged schedule of deepening cuts, for example a first reduction, then a second and third if the stock has not cleared, each triggered by time or remaining units.
- Competitive: a reduction to match or respond to a rival's price on a comparable item, used selectively rather than across the board.
- Promotional markdown: a cut timed to a selling event. It sits on the border with promotions, and the test is whether the price is meant to return afterwards.
The choice is not cosmetic. A single deep clearance cut and a tiered schedule can clear the same stock at very different total cost, which is why the type and the timing are planned, not improvised at the shelf.
Markdown management: timing and cadence
The single most important thing about a markdown is when it is taken, not how big it is. The most expensive markdown is the last-minute one.
- Take the first markdown early: acting while there is still selling season left means a shallower cut clears the same stock. Wait until the stock is stale and you need a far deeper cut to shift it, if it moves at all.
- Trigger on sell-through, not just the calendar: set a target sell-through rate for a point in the season, and mark down the lines that fall short of it, rather than cutting everything on a fixed date.
- Cadence over a single cut: a planned sequence of reductions, reviewed against actual sales, usually beats one blunt clearance. If a line is moving faster than forecast, hold; if slower, step the price sooner.
A tiered schedule makes this concrete. A line might take a first markdown when it misses its mid-season sell-through target, a deeper second cut a few weeks later if stock remains, and a final clearance price before the range is pulled. Each step is triggered by what is left, so stock that sells through avoids the deeper cuts entirely.
This is why markdowns are planned in-season, not left until the stockroom is full. A markdown taken six weeks early at a shallow depth protects far more margin than a panic cut at the end, and it is a decision made from the sales data, not from the calendar alone.
How markdowns fit the rest of planning
A markdown is never a standalone price decision. It sits inside the merchandise plan and moves the same numbers everything else in planning depends on.
It reacts to sell-through and clears ageing stock, which lifts inventory turnover and frees the cash and shelf space the plan needs for the next intake.
It also feeds open-to-buy: markdowns are a planned line in the budget, because a cut both reduces the sales value of held stock and releases room to buy. A merchandise plan that ignores markdowns will overstate both margin and available budget.
So the markdown is the release valve of the plan. Read on its own it looks like lost margin; read in context it is how the assortment stays liquid, which is why it is planned alongside the buy, not bolted on at the end of the season.
What markdowns cost, and the markdown rate as a KPI
Every markdown gives up margin, so the discipline is to give up as little as needed. The markdown rate is how a business keeps that in view.
- The margin hit is real: a markdown lowers the gross margin recovered on each unit sold at the reduced price. Deep or widespread markdowns can turn a profitable range into a break-even one.
- The rate is a health signal: a markdown rate that climbs season on season points upstream, to buying too much, buying the wrong thing, or pricing too high at the start, not to the markdown itself. The cut is the symptom.
There is no single right markdown rate; it varies by category, channel and strategy. What matters is watching the trend and tracing a rising rate back to its cause in the buy, rather than treating heavier discounting as normal.
This is also why markdowns are a boardroom number in fashion, not a shop-floor afterthought. A season that clears only on deep, late markdowns can post strong sales while quietly destroying margin, so the markdown rate is read alongside sell-through to tell a real full-price success from a discount-driven one.
How to build a markdown plan
A markdown plan turns price cuts from a scramble into a schedule. On a season plan, it is a short set of rules agreed before the stock lands.
- Pre-plan the schedule: decide the trigger points and the depth of each step before the season, so the first cut is a decision, not a reaction to a full stockroom.
- Segment by performance: mark down the specific lines, colours and sizes that are missing their sell-through target, rather than discounting a whole category and giving away margin on the stock within it that is still selling well.
- Tie it into the plan and calendar: align the markdown cadence to the merchandise plan and the selling season, so cuts land before demand fades, and review the sell-through data at each trigger.
Knowing the right markdown timing, depth and rate for a given range, channel and market is the fashion-native detail Apshan's Nari knowledge graph answers, cited to source, inside the AI assistant your team already uses. Request access.