With e-commerce growing at an unprecedented pace coupled with the shifts in consumer demand, the issue of excess inventory has escalated especially amongst the fast fashion retailers. Lack of proper planning and inventory misjudgements have also exacerbated the issue. Despite markdowns costing retailers a significant USD300 billion in 2018, it is one of the ways to regulate product lifecycle and combat the issue of overstocking.
Moreover, with the increased awareness towards climate change and how the fashion industry is being scrutinised for negatively impacting the environment, retailers need to stay on top of its product lifecycle management by taking a proactive approach to markdowns.
In this report, we analysed two of the biggest fast fashion retailers in the United Kingdom – Boohoo and H&M, to learn about their markdown strategies and best practices in 2019.
More than 125,000 data points were screened from January to December 2019 on these two retailers.
All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned.
Boohoo is notoriously known for its aggressive markdown executions. This was no exception in 2019, with nearly all products placed on discount at least once during the year (Chart 1 on % of Discounted Products = 99%). Despite sitting on the extreme spectrum of markdown execution, it did not achieve the total sell-out rate higher than H&M.
Meanwhile, H&M managed to achieve above average sell-out rate with less discounted items. The retailer’s strategy in scaling back on markdowns and focusing more on full-price sales had resulted in increased net sales and gross profit in 2019.
Major discount launches for Boohoo and H&M were held in June and October to drive the top spending seasons of the year, namely Summer and Holiday (Chart 2). While Boohoo launched discounts every month in huge volumes, H&M adopted a more tactical approach with new discounted products launched only over key sale events observed for Jun and Oct.
A stark contrast lies in the months of Feb and Nov, where Boohoo ran large volumes on new discounts while H&M was conservative with little first-time discounts.
Boohoo typically held more than three types of promotions in a month (although only the key ones are highlighted in Chart 3). These promotions often include discounts off assortments, time-bound offers, payday focused, and tactical key events such as Valentine’s Day and Halloween. These promotions were mostly executed at up to 50% markdown, with promo codes required at checkout.
In contrast, H&M was focused on scaling back discounting as part of its wider transformation effort. The retailer also paid attention to app download offers and member-exclusive events, in line with its goal to enhance the customer experience via offline and online store integration.
Both retailers launched seasonal sale four times in a year, proving that one of the long-established markdown practices remains relevant to this day.
Boohoo executed its deepest discounts in the year-end sale at up to 80% off, which was unsurprising.
H&M launched the first seasonal sale of the year with deep discounts of up to 70% off, signalling a continued effort to reduce the build-up of inventory. The move paid off as the subsequent sale events saw reduction in the depth of discounts.
As one of the major sale events of the year, both retailers participated in Summer Sale in June that lasted for 8 weeks respectively.
H&M had an early start, nearly 2 weeks ahead of Boohoo and with new discounted products taking up 32% of its total assortment. Not only did the retailer bet on consumer excitement over early seasonal discounting, it also offered almost 2 times more new discounted products than Boohoo in proportion to its total assortment.
Boohoo launched Summer Sale with ‘up to 50% off sitewide’ messaging in its newsletters and landing pages, followed by aggressive further markdown ‘up to 80% off everything’ in just 2 weeks before the sale ended.
Meanwhile, H&M adopted a more measured approach with ‘up to 60% off’ mechanic that lasted a month, before further markdown up to 70% off on selected items.
Despite its messaging on sale up to 50% off sitewide and eventually up to 80% off, Boohoo discounted the majority of items at just 10-29% off (Chart 5). Consumers responded in favour, with the highest sell-out rates registered in the same discount range.
The strong sell-out performance at shallow discounts did not come as a surprise, because the most discounted items belong to Dresses and Tops which commanded 42% of Women’s total discounted items (Chart 6).
Men’s discounted items contributed less than 20% to Boohoo’s total markdown. Tops and Outerwear drove the most discounted items with a combined 56% contribution. Shorts made up a significant mix at 8% which showed higher seasonal-relevance in the Men’s markdown offering.
