MARKDOWNS: Why and When
By Tim Christiansen, Professor
Purdue University (Taken from the Purdue Retailer)

There are two basic reasons for a retailer to take a markdown on merchandise. These are to create an opportunity or to correct a mistake.

Retailers are very used to the idea of marking down merchandise which can be categorized as a mistake in either quantity or assortment. That is, the retailer may have too much of the right merchandise and needs to mark it down in order to stimulate a greater volume of purchasing. Or, the retailer has bought the wrong merchandise and it must be marked down in order to find anybody willing to purchase it.

Markdowns can also create opportunities to stimulate traffic and sales of other merchandise which will be sold at higher margins to compensate for the loss of margin on the sale items. These sales events may be built around a recurring theme such as a "Spring Fling", the store's anniversary or around specific events that may occur regularly like a special exhibit at a museum (e.g./ King Tut or Picasso). The type of event is really limited only by the retailer's imagination and ability to find a tie-in with the merchandise the retailer regularly offers.

Before taking a markdown on merchandise that has been categorized as a mistake, one should ask, "Have I done everything possible to stimulate the sale of this merchandise other than lowering the price?" Too often retailers quickly turn to markdowns as a way to move merchandise.

Sometimes a change of placement of merchandise can stimulate sales without lowering the price. For example, do you make a conscious effort to change your display setups on a regular basis?

Merchandise which may have been overlooked in one display setting may become a good seller if its display location is changed. Have you shown the merchandise with complimentary types of products? For fashion goods, customers appreciate stores that show how to put together outfits. You'd be amazed at the number of ties that get sold because a man (or woman) sees a suit displayed with a tie or ties that look great together, even though the tie may not be that striking by itself. So before taking the markdown, make sure it is the price that is hampering sales and not a lack of thought in merchandising the product.

In spite of the best merchandising techniques, some merchandise purchased by the retailer is just a mistake. Then the markdown question is, "When should markdowns be taken?" The two basic schools of thought on this are, to take markdowns early to clear the merchandise out quickly at a lower cost, or take markdowns late to generate as much margin from the merchandise as possible. However, if competing retailers are marking down merchandise, you have to mark down yours in order to be perceived as competitive by the customer. Also, it does usually work to the best advantage of the retailer to take smaller markdowns early, rather than large ones late. For example, suppose a retailer has purchased 50 items that cost $10.00 each and retail for $20.99 each, an initial markup of approximately 52.4%. During the normal selling season, about 1/2 of these sell at regular price and then the retailer marks them 50% off, sells 17 units at this price, then marks the final 8 items at 70% off and sells them. The total retail sales for this purchase would be $753.65 with a maintained markup of 33.6%. Now, if the retailer takes markdowns earlier, the number sold at full price may decline, but the maintained markup should increase. So let's say that only 20 items are sold at full price, then a 25% markdown is taken and another 15 units sell at that price, then it is taken to 50% off and another 10 units sell with the final 5 units selling at 70% off. The retail sales for this purchase would then be $792.55 with a maintained markup of 36.9%. This is in spite of the fact that some of the units which may have sold at full price were now sold at a markdown price.

Markdowns are a fact of life for retailers, but too frequently, markdowns are used as a primary means of stimulating sales rather than a court of last resort. Make sure that all other avenues of encouraging movement of the merchandise have been tried before turning to markdowns.

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PR Committee Makes Changes in BBH Format for (FY) '98

Beginning with the first Business Before Hours breakfast of your Chamber's 1998 fiscal year (Oct. 8) all sponsorship fees will be the same, with one exception. Until now the fee structure has been as follows: The Business Sponsor paid $100 and received 10 minutes of "commercial" time in front of the group; Exhibitors paid $35 and received 2 minutes of "commercial" time; and the Community Sponsor (a not for profit organization) paid $40 and received 10 minutes of "commercial" time.

As of October, there will no longer be a distinction between Sponsors and Exhibitors. Everyone will be a Sponsor; the fee will be $50; and everyone will receive 5 minutes of "commercial" time in front of the group. The only exception will be the Community Sponsor. That fee will remain $40 and will also receive 5 minutes of "commercial" time. The BBH program has been one of your Chamber's most popular projects. The breakfasts provide an excellent opportunity for exposure and networking for a very reasonable fee.

Some businesses and organizations are already booking dates for '98 and you may want to also. Listed below are the 1998 BBH dates. Call the Chamber office now and reserve your date with opportunity.

• October 8 (Ad Connection has already booked as a Sponsor and Wabash County Hospital Home Health Care has booked as Community Sponsor)

• December 10 (Wabash Engraving and Gift Center is booked as a Sponsor and Big Brothers/Big Sisters is booked as Community Sponsor)

• February 11
  
• April 8
  
• June 10
  
• August 12
  

  Note: Up to five Sponsors and one Community Sponsor can be accommodated at each breakfast.

WACC-Y Golf Outing a Success

Great weather, people having fun and making business contacts, lots of sponsors and door prizes - What more could you ask for?! Oh yeah, your Chamber even made a couple of bucks on this fund raiser!

Following is a list of winners:

Overall winning team:	Thomas Ford - Lincoln - Mercury Team members: Doug Dunn Skip Daughtry Bill Schroeder Brett Widner
Two way tie for 2nd:	CINERGY/psi Team members: Gerald Banks Dan Beard Bill Foulke Jack Purvis	Wabash Plain Dealer Team members: Don Manaher Jack Ulery Rick Welch Jim Widner
Closest to pin on #3:	Brian Nyland CMI, Wabash Cast
Closest to pin on #16:	Doug Dunn Thomas Ford - Lincoln - Mercury
Longest Drive:	Doug Kroft Kroft Construction
Longest Putt:	Don Manaher Nixon Newspapers, Inc.

Thanks again to all who participated, sponsored or donated in any way to make the first Wabash Area Chamber of Commerce - Yearly Golf Outing such a success. Hope to see you all back next year!