Latest / Financially Fabulous / Nothing Sells Without A Promotion
Transcript
- Christyne Gray: A retailer sent me her promotional calendar not long ago. She wasn't looking for help. She was proud of it. Every launch had a countdown built in. Every historically slow week already had a flash sale sitting on the calendar weeks in advance, before anyone actually knew whether that week would be slow or not. What stayed with me wasn't the calendar itself. It was how ordinary It had become to schedule the discount before the business even knew whether it would need one. Last time we traced what actually happens to $100 of gross margin once a sale is made. And the very first thing polling at that margin before rent or payroll or any of the operating costs even entered the picture was markdowns and promotional discounting. I mentioned it almost in passing then. One line in a longer Longer list. I want to spend this entire conversation with that one line because for a lot of retailers, it isn't a line item. It's the operating model itself. This is the Financially Fabulous Podcast. And if you've been with me for the last several conversations, you've probably noticed that we're not trying to fix everything about the business at once. We're walking through one recurring pattern at a time. In plain language, without turning any of it into a verdict on the owner. That's on purpose. These patterns show up often enough across established retail businesses that they're rarely a personal failing. They're usually just what happens when nobody has had the chance to step back and look at the whole picture at once. Today's pattern is the discount. When an owner tells me nothing sells at first prior or at full price, my first question is rarely about the discount itself. I'm more curious about what happened before the discount was ever offered. A promotion is a response. Something came before it. Maybe the buy was too deep in a category that the customer had already moved past. Maybe the price was set a little bit higher. To hit a margin target on paper without much thought put to what the customer actually believed the item was worth or what they are willing to spend. Maybe the product sat in the store or on the site for a few weeks without much movement, and the promotion became the way to make something happen before it turned into a bigger problem. None of that makes the owner careless. It makes her human. A discount produces something a spreadsheet cannot. Argue with. An order comes in, the inventory moves, the bank balance goes up, if even a little. That relief is real. And I understand why it feels like the discount solved something. But relief and resolution aren't the same thing. The promotion moved the product. It didn't necessarily tell you why the product needed moving in the first place. Here's where I want to slow down. Because this is the part that tends to get skipped. When you take 20 or 30% off, you're not giving up 20 or 30% of your profit. Depending on your margin structure, you may be giving up considerably more than that because the discount comes straight out of the profit that was left after the item was already paid for, shipped, stored, insured, marketed, photographed. That's a different kind of math than most owners are running in their head when a promotion goes out. We've talked before about thinking of inventory as invested cash rather than simply products sitting on a shelf. You didn't just buy merchandise, you committed a real dollar to a bet that a specific customer would want a specific item at a specific price within a very specific window of time. Every markdown is a small, quiet admission that some part of that original bet didn't play out the way you expected. That's completely normal in small amounts. Every retailer has some. What matters is whether markdowns are the occasional correction to a mostly sound buying and pricing strategy, or whether they've become the strategy itself. That distinction is worth sitting with. A markdown rule protects your margin while still letting you move through aged or misjudged inventory with intention. A dependency on discounting is something else entirely. It means that the business has quietly agreed that full price is optional. And once that agreement is in place, it becomes very difficult to walk back. This is the part of the conversation that tends to land the hardest because it isn't really about inventory anymore. It's about what your customer has learned to expect from you. If a customer knows that everything eventually goes on sale, she has very little financial reason to buy today. She'll wait because guess what? Waiting has worked for her before. And the more consistently the business rewards that patience, the more her behavior becomes rational rather than random. She isn't being difficult. She's responding to the pattern. That you taught her. That's a different problem than a slow sales week. A slow week is a moment. A trained customer is a habit. And habits are far more expensive to unwind than they were to create. I have watched brands spend a long time trying to reintroduce full price selling to a customer base that had every reason to believe that a better price was always one email away. This is why I would encourage you to think about revenue quality, not only revenue volume, when you look at a promotional calendar. A sale that moves units at a deep discount to a customer who was likely to buy anyway is not the same financial event as new demand at a price that protects your margin. The two can look identical on a sales report and be completely different stories underneath it. If discounting has become the default way that your business moves product, the more useful question usually isn't how do you run a better promotion? It's what is the promotion currently doing the work of? Sometimes it's an assortment that's misaligned with what your customer actually wants right now. And the discount is covering for a buying decision that needs to be revisited. Sometimes it's a pricing structure that was set without enough attention. To perceived value. So the real price never quite felt right to the customer in the first place. And sometimes it's simply that too much was purchased relative to realistic demand. And the markdown is the only lever left to convert that inventory back into cash before it ages further. I want you to actually sit on that one a little bit longer. So I'm gonna repeat it. Sometimes it's simply that. Too much was purchased relative to the keywords. Here's realistic demand. And the markdown is the only lever left to convert that inventory back into cash before it ages further. Are you buying more inventory than what you have, the logical capacity to produce in revenue? Each of these is a very different fix. A better buy to sell plan solves a different problem than a repriced core assortment. And both are different from building the product life cycle discipline that moves an item through markdown stages deliberately rather than reactively. The discount cannot tell you which one you're dealing with. It just makes the underlying issue quieter for a little while. That's the real cost of relying on it. Not just the margin you give up this week. But the diagnostics that you postpone by having a lever that always seems to work well enough, and that margin matters beyond this season's numbers, it's the same margin that eventually funds your own pay, your reserves, and whatever you are hoping the business builds for you over time. A dollar given away in a discount isn't only a dollar the business doesn't keep, it's often a dollar that you don't get to keep either. I don't think the answer here is to stop discounting altogether. Promotions have a legitimate place in a healthy retail business and there will always be a category, a season, or a piece of aged inventory that genuinely calls for a discount and a promotion. What I'd ask you to instead examine is whether the promotion is still a decision or whether it's become a reflex. One way to see that clearly is to look at your full price sell-through on your newest, best assortment, separate from anything discounted, and see what that number is actually telling you. If it's strong, your discounting elsewhere may be a deliberate strategy. If it's weak, the promotion isn't solving your problem. It is covering for one. I would also like to invite you to bring this into a conversation with whoever helps you plan inventory. And pricing and ask a more specific version of the question that we started with today. Not why doesn't anything sell at full price, but what would our customer need to believe about this product for full price to feel more fair for her? That's a harder question, and it's also the one that actually gets you somewhere where you can make progress on your margin. Next time I want to take a look at another place that this same habit shows up, just in a different part of your business. Owners are often just as surprised by their tax bill as they are by how little a promotion actually left them. And for a similar reason. It's a number that gets dealt with after the fact instead of one that's planned for in advance. I am Christine Gray. Thank you for being here. And I'll meet you back here for the next episode.