Every season, markdowns get blamed on the forecast. But a good part of what ends up on the sale rail was never meant to sell at full price. It was bought because the supply chain wouldn’t make less, and the bestsellers paid for it.
Why your bestsellers pay for the tail
Every season ends with the same ritual. Someone presents the markdown figure, everyone looks at the planners, and the explanations follow: demand was misread, the forecast was too optimistic, the weather didn’t help. Sometimes all of that is true. But I tend to think a good part of what ends up on the sale rail was never forecast to sell at all. The brand bought it because the supply chain wouldn’t make less.
Markdowns are one of the biggest costs in fashion. Bain estimates that a typical fashion retailer spends 20 to 50% of its net sales on markdowns and promotions. Yet on the P&L they appear far away from the decisions that caused them. Merchandising reports them, finance manages them, and the people who made those decisions months earlier rarely look at that line.
The real cost of a markdown
On paper, a markdown is simple.
An item planned at one price sells at a lower one, and the difference comes off revenue and margin. In reality it costs a brand much more than that difference, and most of the cost is spread across places where nobody connects it to the original decision.
To begin, the markdown is usually priced in before the season even starts. Many brands account for expected markdowns when setting initial prices and target margins. In effect, part of the planned margin is expected to be surrendered later in the season. This means the customer who buys at full price is partly paying for the stock that will be sold off later. As long as that customer accepts the price, the model works. Once they start to feel it, the brand’s pricing loses credibility, and that is very hard to win back.
Secondly, customers learn quickly. A brand that discounts every season teaches its customers to wait, and each sale makes the next full-price week a little weaker. I think that the more often a discount appears, the less it means to the customer.
So the markdown that was meant to clear this season’s stock makes next season harder to sell.
Thirdly, there is cash. The stock that ends up on sale was paid for months earlier, long before the first customer saw it. Until it sells, that money sits in a warehouse instead of funding the next collection, and when it finally sells at a discount, the brand recovers less than it would have at full price, and may recover less than its original investment.
Lastly, there is timing, and I believe this is the main reason the problem repeats itself so stubbornly. By the time a season’s markdowns are counted, design and merchandising are already working on collections one or two seasons ahead. The lessons arrive when the next ranges are half built, so they are discussed, agreed with and then mostly lost.
So which products actually end up on the sale rail, and why?
The long tail behind the sale rail
If you take an end-of-season stock report and look at it by style and colour instead of by category, you will usually see a familiar picture.
A small group of strong styles sold most of their units at full price. The discounted stock is spread across many smaller things: an extra colourway, a second version of the jacket, a capsule piece added to give the range some character.
Almost every brand has this tail, and very few planned it. It grows one reasonable request at a time. The design team adds a piece to complete the story. A wholesale account asks for an exclusive colour. Marketing wants something new to show every few weeks. A regional team asks for a version that suits its climate or its customer. Each request makes sense on its own and is approved on its own, and nobody sees the total until the range is already built.
Each new piece also carries costs that have little to do with how many units it sells. Every style needs development, samples, fittings and technical documentation before it reaches production, and then photography, product copy and a place in stores and on the website. Most of this work is the same whether a style sells a lot or very little, so a small style carries almost the same workload as a bestseller, spread over far fewer units. The extra colourway is the most common example. Quite often it doesn’t bring new customers at all, it simply splits the same customers between two options and leaves both of them thinner.
A job for every piece
The standard advice is to cut this long tail, and I understand why.
The tail takes a big share of the buying budget, warehouse space and the team’s attention. However, it is also where a brand tries new ideas and shows what it stands for, and that is exactly what makes its bestsellers worth full price. A range built only from proven bestsellers works for a season or two. After that, it starts to look like everyone else’s.
The difficulty is that the value of the tail rarely shows up in its own numbers. A strong capsule piece can sell modestly and still be the reason people stop at the window, open the campaign or come back to the website.
Some tail pieces are tests, and a few of them become next year’s bestsellers. Others give the hero products their context, the same way a well-cast supporting role makes the lead performance look better.
Judged only by their own sales, all of these pieces look like candidates for cutting.
That’s why I find it more useful to ask a simpler question of each piece in the tail: what is its job? If it tells the story, tests an idea, completes a look or serves a customer the brand truly wants to keep, it has a job, and that job can be judged. If nobody in the room can say what it is there for, it is probably filler, and filler is the first place I would look for avoidable cost.
Even the pieces with a clear job, though, often cost far more than they should, and to see why it helps to separate two things that are easy to blur. Breadth is how many different styles, colours and options a brand offers. Depth is how many units it buys of each one. Everything I have described so far is a question of breadth, and that is where creative teams usually feel most at home. Depth is decided later, by buyers and sourcing, and it is where the cost of breadth finally becomes visible. Very often the expensive part of a tail piece has less to do with whether it should exist than with how many of it were bought.
Minimums and the depth nobody planned
Imagine a designer adds a colourway because the collection’s story needs it. The merchandiser gives it a careful, modest forecast. Then sourcing comes back with the minimums.
Minimums exist at several levels at once. The mill producing a custom fabric or colour has its own minimum run, and so does the factory sewing the garment. Whenever the fabric minimum is larger than what the forecast needs, the fabric ends up deciding how many garments you make, whatever your forecast says.
From here, the brand has three ways out, and each one lands on a different line of the P&L. It can buy the full minimum and carry the excess, which will most likely be marked down later. It can pay a surcharge for a smaller run, which raises the cost of every unit, including the ones that sell. Or it can drop the colourway, and the idea simply disappears without anyone recording what it might have been worth.
Often, the first option looks like the easiest one, because its cost arrives months later, the costing sheet stays clean, the planned margin looks healthy, and the extra units just become part of the buy.
I call these units forced depth. The forecast may well have been right. The brand committed to the extra stock because of how its supply chain works, and nobody in the room expected it to sell at full price.
It is worth being precise about the term, because not every unit above the forecast is forced. A buyer can end up with more stock than the forecast for different reasons, and each one means something different for the P&L.
Forced depth is the case I have just described. The forecast is modest, the supplier’s minimum is bigger, and the extra units enter the buy only because the supply chain can’t produce the forecast quantity. Demand never asked for them.
Commercial overbuying looks the same on a stock report, but it comes from a decision. The buyer expects the product to grow beyond the forecast and orders more on purpose. If the bet doesn’t pay off, it is a buying judgement that didn’t work out, and it should be reviewed as one.
Protective buying is smaller and deliberate too. The buyer adds a modest buffer above the forecast to cover uncertain lead times or to avoid running out of a style that matters. It is a conscious risk decision, with a cost the business has agreed to carry.
Separating the three changes who should answer for the markdown.
Overbuying is a question of buying judgement, the buffer is a question of risk appetite, and both have an owner. Forced depth has no clear owner at all, which is exactly why it keeps coming back season after season, until someone starts treating it as a range and sourcing decision.
Two hits to the P&L
Forced depth hurts the P&L twice.
The first hit is easy to see. The extra units in the tail get discounted, held over or written off. This shows up as markdown, and the blame usually goes to the products themselves: the colour didn’t work, or the customer wasn’t ready.
The second hit is harder to notice. The buying budget is limited, so every euro spent on minimums in the tail is a euro that can’t go into more stock of the styles that sell. That’s one reason so many seasons end with the strongest products sold out early, with customers still asking for them, while the tail sits on the sale rail. Retail analysts write about this pattern a lot. They talk less often about the fact that part of it was locked in at sourcing, when the minimums of a dozen small ideas used up the money the bestsellers needed.
It’s a bit like packing a suitcase with things you might wear and then finding there’s no room left for the shoes you know you’ll need every day.
As a result, the P&L tells a misleading story. The tail looks like a demand problem and the bestsellers look like a success, when in fact the bestsellers were under-bought to pay for tail stock that no forecast had asked for.
Good practice in range planning
Better forecasting alone doesn’t solve this, and neither does cutting the tail wholesale.
Good practice starts with putting an honest price on creative breadth at the moment the range is decided, and in reality it comes down to a few habits.
The first is to look at forced depth as a separate number. For every style and colourway, the difference between the forecast quantity and the committed quantity is visible, together with the reason for it. Once that gap is on the table, the range review becomes a much more honest conversation, because everyone can see which markdowns were effectively bought on purpose.
The second is to build the tail on shared foundations. Minimums are pooled at the level of the fabric, so when experimental pieces share a fabric with core styles, the idea lives in the design rather than in a material that brings its own minimum. Designers keep their freedom and simply use it where it costs the least.
The third is to give every piece in the tail a stated job before it is approved, and to fund experiments openly.
Every brand needs ideas that might not work.
When each one has a clear purpose and an agreed cost from the start, a modest seller can be judged fairly, by whether it did what it was there for, and filler is easier to spot before it is ordered. Otherwise the cost hides in buy depth and turns up months later as markdown, when nobody can do anything about it.
The fourth is to treat a small idea meeting a big minimum as a real decision, and to have sourcing in the conversation while that decision is still open. Each option has its price: the extra stock and its likely markdown, the surcharge and what it does to margin, or dropping the idea. Any of them can be the right call, but only while there is still room to discuss minimums with suppliers. Once the range is signed off, sourcing can only report the consequences, and dropping the idea is often the only choice anyone notices making.
The last is to close the loop between the sale rail and the next range. Markdowns are reviewed by style and colourway, with the reason behind each one, and that review reaches the people building the next collections while their decisions are still open.
Reading markdowns from the other end
Markdowns are usually treated as the end of a season’s story. I find it more useful to read them as the beginning, because they record creative, commercial and operational decisions that were made separately and only met each other on the sale rail.
Read that way, the sale rail becomes one of the most honest documents a brand produces. It shows which ideas customers loved and which never had a fair chance because the money went into stock nobody had asked for. Nobody has to agree on who was to blame for it to be useful. It simply has to reach the people making the next decisions while they can still use it.
I’m not arguing for fewer ideas. I believe many of the products that later define a brand start life as risky pieces in the tail, the kind that would never survive a spreadsheet on their own.
It is always hard to balance. Creative teams want room to try things, finance wants every euro to earn its place, and sourcing sits between them holding the minimums. Each of them is right from where they stand. But the P&L should never become a stopper for creativity. Used well, it shows where the cost of an idea will land, so the brand can choose to pay it on purpose instead of discovering it months later on the sale rail.
A brand that knows what each idea costs, and where that cost will show up, can afford to be braver.
Ultimately, that is what good management should give creative work: a clear view of what each risk costs, and the confidence to take it anyway.