Markdown budgets for retail buyers: help or hindrance?

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dc.citation.epage1892en_US
dc.citation.issueNumber10en_US
dc.citation.spage1875en_US
dc.citation.volumeNumber26en_US
dc.contributor.authorŞen, A.en_US
dc.contributor.authorTalebian, M.en_US
dc.date.accessioned2018-04-12T11:02:20Z
dc.date.available2018-04-12T11:02:20Z
dc.date.issued2017en_US
dc.departmentDepartment of Industrial Engineeringen_US
dc.description.abstractFor many retailers, markdown decisions are taken by retail buyers whose compensation is based on sales revenue so their objective is to maximize it through the season. This implies that the buyers' objectives are not perfectly aligned with the overall profitability the firm. Many retailers set markdown budgets prior to the season to control margin erosion and increase profitability. Markdown budget constrains the buyers on the amount of discounts that they can apply on a given inventory of merchandise and sets a limit on the dollar value of markdowns for the season. While markdown budgets may be useful in preventing excessive discounts, they can have a detrimental effect on the buyers' ability to respond to poor market and remove distressed inventory. We investigate the effectiveness of this practice in aligning the incentives of buyers with that of the firm, and provide guidance on how these budgets should be established ahead of time. We consider a firm with a fixed inventory of a seasonable item, and a single chance to mark the price down. The retailer knows only the demand distribution at the beginning of the season, but the market information is revealed during the season to the buyer. We first characterize the buyer's markdown policy and understand the circumstances under which this can be different from the retailer's markdown policy. We use our model to determine the optimal markdown budget and quantify its effectiveness considering different factors such as the level of demand uncertainty, initial markup, and market's responsiveness to markdowns.en_US
dc.embargo.release2018-10-17en_US
dc.identifier.doi10.1111/poms.12725en_US
dc.identifier.eissn1937-5956
dc.identifier.issn1059-1478
dc.identifier.urihttp://hdl.handle.net/11693/37081
dc.language.isoEnglishen_US
dc.publisherWiley-Blackwellen_US
dc.relation.isversionofhttp://dx.doi.org/10.1111/poms.12725en_US
dc.source.titleProduction and Operations Managementen_US
dc.subjectCearance salesen_US
dc.subjectFashion industryen_US
dc.subjectIncentive alignmenten_US
dc.subjectPricing policyen_US
dc.titleMarkdown budgets for retail buyers: help or hindrance?en_US
dc.typeArticleen_US

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