Retailers’ recent forays into deep discounting may be costing them profits in more ways than one. In 2016, 114 e-Commerce retailers missed $9.24 million in revenue by miscalculating the optimal percentile in which to discount items, according to analysis from fashion data platform provider EDITED.
The women’s luxury goods category incurred the biggest loss, accounting for almost half ($4.3 million) of the total revenue missed last year. Women’s luxury goods discounted at 40-50% upon a first markdown stayed on shelves for 19 days longer than those discounted at 30-40%.
Luxury items take the longest to sell — even when discounted. Menswear luxury items sit in inventory for more than three months on average (about 112 days) followed by womenswear (106 days) and children’s (70 days).
Premium products have the opposite effect, with 50-60% discounts moving product fastest. When retailers discounted women’s premium goods 20-30%, they lost $1.69 million, with products not selling for an extra 16 days. However, men’s premium products did not experience a significant revenue loss, indicating a more aligned discounting strategy with consumer demand.
Since consumers expect to buy products cheaply at mass market brands, these retailers shouldn’t overdo discounting. If they discount too much, consumers may believe they’re getting leftover products no one else wanted to buy, instead of a genuine bargain. Womenswear products sold 11 days faster when first discounted at 30-40% rather than 40-50%. Retailers lost $1.59 million on the latter discount. Meanwhile, mass market menswear retailers would have pocketed over $517,000 in sales had they chosen to discount at 20-30% rather than 30-40%.
Mass market products sell quicker after discounts than their luxury and premium counterparts. Discounted mass market childrenswear took only 43 days on average to sell, compared to 80 days for premium products. Mass market womenswear took 63 days compared to 76 days for premium items. Finally, mass market and premium menswear took 67 days and 80 days to sell respectively.