Clearance

Note: The below concept of automated clearance is something I’d like your perspective on. If it’s interesting to you, write back. I’d love to chat.

I’ve talked with a couple brands recently who proactively brought up clearance sales as a pain point. 

Why are they painful? They’re manual, more art than science, and fairly low value (and low revenue). Yet they still need to get prioritized, because getting back some cash for a soon-to-be-expiring product is better than not getting anything at all. 

So, it felt a bit innovative when I saw this promo at the entrance of my local Staples (I didn’t think I’d be writing that this week¹): 

Bin Wins, I’ve learned, is a concept Staples launched last year to attract bargain hunters.

Every Friday, there’s a new drop of clearance items (plus Amazon/Staples returns, etc). All of them are marketed at $15. And, whatever’s not claimed at the end of the day, gets marked down to $12 for Saturday. The process repeats itself (with progressively steeper discounts) until the next Friday, when the bin is restocked.

It’s a Dutch Auction (an auction that starts with a high price that descends until there’s a buyer), a nice way to potentially solve the “clearance problem.” In conversations with brands, there’s both a strategic and executional element to the problem, and I think “Bin Wins” (or something like it) might solve both.

If you start with strategy: 

One of the hardest parts of clearance is deciding what to do when. If inventory is about to expire due to seasonality (like a type of shirt), is it better to hold that inventory for next year, when you might be able to sell it close to full price? Or is it better to take what you can get now to convert that inventory back to cash faster? And, if you choose to improve the cash conversion cycle, at what point does that not make sense (i.e., the markdown you’d need to make is so low, it ends up being better to wait)? If you ignore those questions, how far below COGS are you willing to go? And these calculations would change if it’s something in food & bev that’s actually expiring, or maybe it’s floor models or refurbished items that can’t be sold at floor price.

And then there’s execution: 

If you do opt to clear out inventory, who owns that? What’s the markdown rate? When does that markdown change? Do all products get the same markdown rate? Or do you base it on COGS at a SKU level? Who’s going to change the price tags? Or update prices in shopify?

All this to say that clearance gets messy quickly.

Using Bin Wins as inspiration, though, a Dutch Auction can reduce the amount of cognitive load (and manual resources) needed to run a clearance program. 

Imagine: You set a floor you’re willing to accept (it could be a $ value or a % of COGS value) and the remainder of your clearance execution happens automatically. No one needs to run it, because it runs itself based on market demand. 

If we were to go back to our Uncaptured Margin visualization, it’s like a dozen (maybe even more) mini stairsteps that extend the demand curve and capture some increasingly small percentage of margin. Unlike that visualization, though, the Unit Cost line doesn’t matter (because COGS are a sunk cost and you’re just trying to get some cash for it), and you can plot how much more demand can be captured via clearance. 

The upside is twofold: it removes the need for someone to spend time on a lower margin activity and it begins to create a series of data points around what additional pockets of the market might be unlocked if price weren’t a constraint. 

It, also, from an Intelligems perspective, feels like something that’s extremely aligned with our mission of helping people make the most profitable decisions for their business.

Should we build it?

1   Even more unexpected, I was there because it's one of the few places I could do my TSA global entry renewal. Who knew.