Sometimes, products just don’t sell, and it’s time to mark them down, to cut losses and move on. But that is rarely a satisfactory business outcome for stores or manufacturers, given the financial impact on all parties. While consumers might be happy, that assumes they like the product in the first place.

In the worst-case scenario, products don’t sell, cash is tied up in items with little value, and no one is happy.

“Inventory is neither wine nor cheese and doesn’t get better with age,” said Dan Jablons, an inventory expert and head of consulting firm Retail Smart Guys who’s worked with Walmart, Target, and JcPenney, among others. “The other one that I’ve got, and other people use this one though, is your inventory should never have a birthday. And there are plenty of retailers out there that have a few toddlers running around.”

In this Space Planning Community feature, we’ll explore eight common reasons items end up selling for less than list price — and the work Space Planners, Category Managers, and Shopper Insights professionals can do at the outset in an effort to ensure products sell as intended. As Space Planners are our primary audience, our guidance will be focused upon actions they can take, but there are tips and food for thought for all functions charged with getting the right products at the right price onto the right shelves.

(We apologize in advance to the devotees of the clearance aisle.)

Why Markdowns Can Occur

Reason No. 1: Retailers and suppliers misread consumer trends, leading to space allocation not aligning with product movement.

The scenario: During a category review, a manufacturer proposes adding a new product for a growing market segment. The segment currently has a low market share, but the manufacturer shows data indicating high-growth potential. The retailer, wanting to get ahead of this trend, signs off on adding to the shelf, and at an ambitious volume. However, sales projections are too rosy and/or based upon incomplete or inaccurate insights. The trend doesn’t take hold, and the retailer is stuck with far too much supply.

The solution: Together, retailers and suppliers must work and rework their insights at review time to stay on top of what’s happening — and what could happen in the market. Sometimes, being conservative in going “all-in” on new products is simply the right play, given the downside risk.

However, this can be a nuanced discussion. Let’s take the coffee category as an example. The suppliers and retailers who were first movers on the K-cup / single-serve coffee trends devoted the necessary shelf space to a now-booming segment early on and retained greater than their fair share of market.

Reason No. 2: Incorrect product/shelf dimensions in the planogram.

The scenario: In this case, the planogram doesn’t match the actual dimensions of the shelf, leading to products that fit awkwardly (leading to unattractive viewing for shoppers) or that don’t fit at all. Both issues can reduce product velocity.

The solution: This is basic blocking-and-tackling for space planning professionals. Simply put, dimensions must be double- and triple-checked, particularly if a product’s packaging has changed. Space planners must know the merchandising standards established for the category. “If you’ve set the dimensions up wrong in the system, it’s going to be really ugly when you get to setting the product on the reset,” said Shawn Wolf, a space planning and category management expert whose experience includes time with Walmart, Kellogg’s, Clorox, Keurig, and Acosta.

Reason No. 3: Assortment is not aligned to shoppers’ needs.

The scenario: A store in warm-weather climate somehow ends up with a pallet of ice melt. (Good luck moving that.)

The solution: While this is an extreme example, it speaks to the need for buyers and category managers to be attuned to local markets. More than ever, localized planograming solutions can keep these nightmarish scenarios at bay.

Reason No. 4: Items are not authorized for the planogram in the store but are accepted as SKUs to sell within the store.

The scenario: Wolf explains: “Sometimes you have a retailer where stores might have the flexibility to order special products that are already set up in the system to ship into the store, but they really don’t have a place in the planogram. So then it becomes a little bit awkward on cutting this item in and giving it a space. Obviously, I’m going to take facings from another item, or I’m going to pull another product off, and that creates a lack of modular planogram compliance specifically for that planogram.”

The solution: In this case, coordination between buyers, category managers, and space planners are essential, given the downstream effects on numerous suppliers.

Reason No. 5: Shelf prices being marked up or below what suppliers anticipated.

The scenario: Pricing is consistently a hot topic between retailers and manufacturers, especially during challenging economic times. While price decisions are at the sole discretion of the retailer, manufacturers do significant research on price elasticities and thresholds to determine the price tolerance of consumers. Retailers risk significantly slowing product movement when straying too far above the thresholds indicated by the consumer, and with that, increase the risk of markdowns.

The solution: The implications of quick-changing prices should be obvious to all industry functions. Said Wolf: “When a manufacturer goes in with a suggested retail price, and the retailer ultimately decides what the price is going to be, if it’s outside of that threshold that the manufacturer is recommending, this may impact velocities, and it can potentially impact whether the item stays on the planogram and the space required for that item on the planogram.”

Suppliers must enter all discussions with a solid understanding of retailers’ margin requirements to ensure their pricing recommendations can deliver acceptable margins. Retailers who choose to price above recommended prices should closely monitor product movement to minimize potential markdowns.

Reason No. 6: Expired/expiring products and short-coded shelf dates.

The scenario: This topic is most relevant to the Fresh/Perimeter categories. Think of a package of mushrooms with a clearance label on it, with a use-by date fast approaching. What’s good news for your stir fry is bad news for retailers and suppliers.

The solution: According to Wolf, retailers must work with manufacturers and distributors to ensure a tight window from production to shelf. “The longer you lengthen that time, markdowns become a much bigger opportunity,” he said.

Reason No. 7: A misaligned sell-down process prior to reset.

The scenario: Let’s suppose a category review occurs four months before a planogram reset is executed. For those products that aren’t making the next reset, getting them marked down with enough time to sell-through is essential, with two months a good rule of thumb.

The solution: Here’s where category managers and buyers come into play. One major hurdle that must be cleared quickly and efficiently is the negotiation between suppliers and retailers on whether a slow-selling product gets one more chance in the planogram, perhaps through a supplier incentive. Any delay in this process can slow the sell-down if it comes to that.

Reason No. 8: Promotions aren’t executed as intended.

The scenario: This can happen for a number of reasons. Perhaps the items get out of the stockroom late, or they’re placed in the wrong part of the store, or maybe they’re not at all the right items for that particular store’s shoppers.

The solution: “A good promotion especially for warehouse-driven items,” Wolf said, “starts with a supplier understanding the right promotional mix given each store’s shopping behaviors. Optimizing a promotion helps prevent unnecessary promotional product finding its way back to the shelf and affecting order frequency and planogram compliance.”

How the space planner can assist in the process, Wolf said, “is understanding the mix and being able to provide that input and flavor profile back to the merchant to help prevent a poor display sell-through.”

Imperatives for Space Planners to Act Upon

We’ve established why markdowns can happen. So, what role can space planners play in ensuring they don’t happen often, if at all?

We will divide our guidance into two buckets: Tactical Tips and Strategic Strengthening.

Tactical Tips

When it comes to success on shelf, the space planner must be grounded in these micro-space fundamentals:

Category consumer and shopper trends
Brand roles and strategies
Category-level profit & loss (P&L)
Shelving strategies

Here are some actionable ways space planners can utilize ARC’s training resources to shore up their fundamentals using existing courses:

Course: SP001: Key Elements of Space Planning – People, Places, Parts
- Use case: A good refresher on space planning basics, particularly fixtures.
Course: SP002: Key Elements of Space Planning – Product Flow, Process and Profits
- Use case: This course introduces planogram reset fundamentals and also reviews key KPIs.
Course: SP003: Merchandising Fundamentals: Part 1
- Use case: Want to brush up on Customer Decision Trees (CDTs)? This is the course to take. Presentation fundamentals are also covered in-depth.
Course: SP004: Merchandising Fundamentals: Part 2
- Use case: If you’re looking for guidance on the importance of executing patterns on the shelf, this is for you.
Course: SP005: Intro to Micro Space Planning
- Use case: This course covers many key micro space fundamentals, but for purposes of markdowns, the guidance on planogram reviews is particularly important.
Additionally, Space Planners will also want to be on the lookout for our new Space Analysis 101 course, set to launch soon.

Strategic Strengthening

While the space planning profession requires strong tactical acumen, experts we talked to tell us that strategic thinking is essential to avoiding some of the execution mistakes that lead to markdowns. A growth mindset is essential. Two tips stand out:

1. Be proactive and consultative

According to Colleen Volheim, category research and analysis manager at HRG (Hamacher Resource Group), a retail solutions provider, a space planner needs to be consultative when executing a planogram reset, sharing the “why” behind the “what” of execution.

“The biggest thing you can do is be prepared, plan ahead, provide more than just a schematic or a color planogram and an ID listing and say, ‘Hey, here you go,’ ” Volheim said. “Provide the strategy behind it. That may be context on shifts that have occurred in the section or clarifying that it’s a promotional piece. Explain how it supports the shopper experience. When the installers or retail store staff understand the ‘why,’ they can be more intentional in setting the section to meet your expectation.”

2. Always be thinking about honing the skills you’ll need in your next role, which will likely be more strategic than your current role.

Wolf, who’s managed large teams of space planners and category managers during his career, was asked how long it takes for space planning professionals to intuitively understand sales velocity in a category. His answer suggested that understanding the nuances of a category is both a matter of both space planners’ experience and willingness to push themselves to go beyond simply executing.

“Anyone that’s new, they probably should go through a full cycle, which is, (maybe) half a year, to really understand how that goes and then be able to start the next cycle and be thinking about that,” Wolf said.

He continued: “My expectation of my team would be to continually think about the evolution of the next role. So, as a space planner, if you want to be a merchant or category manager, what are the requirements for that? It’s about really understanding the velocities of each item at a high level as well as hyper locally. It’s really understanding trends in the market. It’s understanding what’s missing, what’s not missing. It’s understanding the details and dynamics of that category.

“As they get one reset under their belt, the expectation is they lead that next one and then start thinking about, what they should be considering as the next role? And whether they do or not, it just gets them thinking about what’s required in the process. Not only is it that we are talking about things that do happen, but it’s getting people that are reading this to strategically zoom out about how they should be approaching not only the tasks, but just the role in general, both as they grow their career.

“Every role may have a tactical expectation, but there’s also the strategic piece of that too. As we talk about entry-level roles, there’s probably more tactical execution than there is strategic behavior. But even at the level of space planning manager, it’s about how I can improve the process. How do I think about having a more efficient execution of that planogram? What are the things that are challenging me versus just I need to draw this box? It’s that strategic view.”

To hone that strategic view, space planners are advised to review a couple of new ARC resources. A new training course, SP006: Category Management Overview for Space Planners, is essential to learning how CatMan practitioners approach their roles in an evolving omnichannel world.

Finally, space planners should set time aside to explore ARC’s new Career Launch, which benchmarks retailer and supplier professionals against industry standards and provides detailed guidance and action steps for upskilling. It is also a one-of-a-kind tool for learning about new fields. Space Planners seeking to learn more about a new function would be well-served to give the platform a spin to see what it takes to succeed in that field – and what competencies would be needed to have a working understanding of that function within space planning.

This story started with markdowns, and it ended about you, the space planner, considering your craft. Ultimately, all guidance from the Space Planning Community will have that at its core – the need to elevate at a time when so much is changing, and how it can make all the difference.