Retail Dogma

Why Do Retail Stores Have Sales?

Retail & ecommerce managers sit every year during budgeting season and plan out their next year’s events calendar. In this calendar they plan their sales events, as well as other seasonal launchings or any promotional events for the year. So why do retail stores have sales in the first place?

Marketing Calendar: Planning for retail Sales

Retail & Ecommerce Stores Have Sales for 3 Main Reasons

  1. To drive sales or revenue
  2. To clear unsold merchandise
  3. To generate cash

Having Sales to Drive Revenue

It’s a fact that having strategic sales events and promotions drives top line, due to the sense of urgency that these events create and drive customers to buy now.

In fact, in many cases retailers make more profits on those sales events than they make in normal days. This is because the growth in sales more than makes up for the loss of margins.

Having said that, if a store starts to have more sales events more frequently, this strategy will start to fail. In this case customers will not have that sense of urgency anymore, because they know “there will always be another sale next month”. This will result in loss of sales as well as margins, due to discounting. It is a very bad situation for any retailer to be in, and you should avoid getting into this place at all costs.

Read Also: Why your sales promotions stopped working?

To avoid this situation the retail or ecommerce business needs to plan their sales events in advance and stick to that plan.

Why Do Stores Have Clearance Sales?

Retail stores have clearance sales to clear the unsold merchandise that is remaining at the end of the season. This allows them to generate cash to buy new merchandise for next seasons.

Read Also: Retail & Ecommerce Cash Flow Management

When retailers buy their inventory they already know that they will sell part of it at full price and then clear the remaining at a discounted price. This is because some styles, options or sizes will sell out during full price trading, and there will always be certain SKUs that lag behind. These are then cleared at a discount.

Are Customers Getting a Good Deal on Those Sales?

Yes, they do.

As a customer, when you buy during sales you are saving on the item without the item having any issues (defects, damage,..etc) in it. As you have seen here, the reasons it is discounted are mostly financial.

However, this comes with a caveat..

When you wait for the sales you might miss on the best sellers that actually sell out before the sales events start. Also if your size is popular, you might not find your size by the time the product reaches the discount stage.

How Do Retail Stores Decide What Goes on Sale?

This depends on the reason behind holding this sale event.

If it is for clearance purposes, then the products will go on sale depending on their age. The longer the product has been on the sales floor the higher the discount that will be assigned to it. Also for these products the price will not return back to normal after the sales events.

In this case usually new products will not be included in the sale, unless some styles have proven to be unpopular or are having a low sell-thru rate.

If the reason behind holding this sale event is to drive revenue or generate quick cash, then this could mean that all products can be given a flat discount (e.g 30% Off on everything) and usually such events will be for few days only, after which the price will return back to normal.

How to Make The Best Out of Sales?

As a retailer or ecommerce owner, if you structure your sales events correctly, you can reap the benefits of them without letting them drag on your profitability.

This is achieved by planning those markdowns in advance during the budgeting process, and then using this plan to create your buying budget correctly. This will leave you with the right amount of inventory at the end of the season, so you don’t have to give too much discount, and yet your customers will also be happy because you have given them a good deal.

Failing to plan your sales in advance or failing to budget your buying can result in you losing money on your inventory.

Read Also: 5 Ecommerce Mistakes New Merchants Fall into

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Bottom Line

Retail stores have sales to drive revenue, generate cash and clear unsold merchandise. Planning for those sales in advance and linking them to their buying plans can help retailers actually make more money during those sales events.

Read more articles on Sales Management