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Markdown-onomics

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But when Saks discounted the emerald-green blazers from $410 to $245.90, there were no ripples.

At that stage it wasn’t too worrisome. So many discounts are priced into the cost of goods these days that it is possible to mark an item down severely and still make money. When items need to be marked down—and sometimes when they don’t—buyers simply return to their vendors, whoever sold them the ugly sweaters or the emerald blazers, and demand kickbacks, known in the business as “markdown money.” Markdown money has been around in some form since the middle of the century, but by the eighties, it had become systematized; only a few big brands—Polo and Nike, for instance—have the power to resist ponying up. But for the most part, these days, vendors factor markdown money into their own margins, by skimping on a button or two here, some extra stitching there, applying the pressure to their own factories. Clothes got chintzier. Eventually, 30 percent discounts, tacked on coats and holiday dresses by mid-October, stopped seeming like discounts at all. Even at Neiman Marcus, lauded for its “disciplined” approach to discounting, regular clients know they can usually convince a clerk to hold desired purchases for them until the first wave of markdowns.

At independent boutiques, the markdown process tends to be more straightforward. “At the end of the season, I just walk around the floor and do it,” says Steven Alan, whose eponymous stores sell basic men’s and women’s casual clothing from a few small vendors, including his own line. Small, unproven lines sell to him on consignment, which minimizes some of his inventory risk; but unlike big department stores, he can’t demand markdown money—and doesn’t want to. “A lot of people don’t realize that we sell stuff at a loss, but I’d much rather sell something at a loss and get rid of it.” Alan usually slashes prices only once, by between 30 percent and 50 percent, at the very end of a season (his post-holiday sale began January 11), and generally marks down everything but his own Steven Alan line, for which the demand is steady enough that he doesn’t have to. If stuff is left over after that, he adds it to his sample sales. Alan hedges his own risks by representing small designers with bigger retailers and selling his line online, but says “it can be a really tough business, especially in New York.”

Once they go down the markdown road, retailers have a hard time turning back. They can’t risk losing sales to competitors, or alienating their shoppers, or pissing off the newspaper-ad salesmen whose industry they subsidize with their glossy weekly circulars, or—most important—missing the comps that decide their bonuses. “If business was good, we marked down because we could afford to do it,” says Speed. “And if business was bad, it was because we were trading margin for volume in hopes of making our numbers.” In other words, if X, then Y; if not X, then Y. Markdowns became like liquor, consumed equally in times of grief and celebration. But for the green blazers, nothing was working. By December, Saks had reduced them again, from $245.90 to $163.90.

Addiction to sales started with department stores. But no sooner had specialty stores like the Gap and Ann Taylor swooped in to steal market share than they were getting hooked themselves. Because they sourced all their own merchandise—instead of buying from an array of fashion houses, like department stores do—their margins are higher, which gives them greater latitude on markdowns. A friend of mine who monitors sales and promotions counted twenty separate sales, from a summer-passport promotion to a friends-and-family sale, during 2004 at Gap alone; last year had so many she stopped counting in June.

As it happens, that friend is named . . . well, we’ll call her the Mall Maven. She is a small cog in the big wheel that keeps retailers putting things on sale. Maven is a former retailer and mother of two grown children who has fashioned a second career for herself essentially going to the mall, every mall, from sparkling Neiman-anchored emporiums in Dallas to the loneliest, saddest collection of dying shops on the South Side of Chicago. Today, we are wandering around a small women’s-apparel chain at the Westchester, a ritzy mall just outside Scarsdale.

“See this number?” she says to me loudly, fingering the price tag on a crocheted shrug. “‘Four-five-oh-five. That means it arrived somewhere, either here or the warehouse, in the 45th week . . . ” She closes her eyes. “November.”

“That stuff actually just came in,” the shopgirl pipes in.

“Then it must mean the warehouse,” Maven says, pleased, arriving at the point: “So how did you guys do this month?” Maven smiles knowingly, empathetically. Forgivingly.


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