Dealers offer tips on clearance sale pricing

Sometimes it’s better for retailers to just skip an end-of-the-year clearance sale.

Too often, dealers take a “scorched earth,” “trade merchandise for cash” approach to such a sale. Reductions of 25% to 50% are commonplace. Some dealers erroneously believe that if they buy an item for $50, mark it at $100 retail, and then have a 50% off sale that they are making their $50 back. Not so. They still have to cover their overhead. To sell for anything less than cost plus overhead is to take a loss. (Of course, if you’re in an inventory “death spiral” then drastic measures may be necessary; see Behind the Gavel November 8, 2010, “Inventory, Investment, and Perception”).

If you are having an end-of-the-year clearance sale, it’s important to have a clear pricing strategy so that you can maintain profit margins at an acceptable level. Otherwise, you’ll find that rather than boost your financial position, all you’ve done is increase your cost-of-goods sold and decimate your return-on-investment. If that’s the case, you’d be better off not having a sale.

Do you plan to have an after-Christmas sale? If so, what is your pricing strategy? Dealers who have consistently good year-end sales have shared some thoughts on how they move merchandise while staying profitable. I’ve also gleaned a few ideas from a couple of other sources, which are linked below. Allow me to pass on some of those insights for your consideration.

A clearance sale should be for select merchandise only. Store-wide sales are counter-productive. Antique dealers spend too much time scouting and picking to reduce prices on hard-to-find, unique merchandise. Keep the “good stuff,” clear out the rest.

Make the sale items easy to find and identify. Move them to a special clearance table or section of the store, or mark them with a special tag. Don’t make your customers search your store to find the deals.

To sell for anything less than cost plus overhead is to take a loss.

Limit the length of the sale. Sales work on the concept of urgency; customers who believe a sale will end soon are more likely to buy. A weekend (3-day) sale is good; never go more than two weeks. The longer a sale continues, the less pressure there is to “buy now.” Along this line, marking an item “Last One!” is an effective tactic (even though most of the items in your store are probably the “last one”). When the sale is over, move the discounted merchandise out of sight; re-display it at a later time. Let the customers believe that you sold it all. Next time you have a sale, perhaps they will buy something instead of ignoring your promotion.

Use “half off on second lower-priced clearance item” pricing. Essentially, this equals a 33% discount on both items, but is a more attention-getting promotion. Avoid two-for-the-price-of-one promotions for antiques and collectibles; the concept just doesn’t work. If you have a new merchandise selection though, and have an excess of particular items that you want to clear out, then two-fers (BOGOs) can work as a tactic.

Use both absolute dollar as well as percentage-off promotions. Jonah Berger advocates for the “Rule of 100”: His research has shown that for items priced under $100, consumers pay more attention to “percentage off” sales; for items over $100, offering a discount in absolute dollars is more effective than offering a percentage off the retail price (you may have noticed that high-priced goods like cars and vacations are usually promoted with dollars-off pricing). “Even when the discounts (turn out to be) the same economically” says Berger, “they don’t feel the same psychologically. One feels bigger than the other.” 25% off a $20 item ($5) “feels” like more of a discount than $5 off the same item.

Diametrically, $500 off a $2,000 item “feels” like more than 25% off the same item (even though the sale price by both methods is $1,500).

Along with clearance sale pricing tactics, dealers offered some caveats. The most common of these was “keep your margins high to begin with.” Most successful retailers have learned that a retail selling price has nothing to do with what you paid for an item. Keystone pricing – marking up an item by two or three (or more) times what was paid for it with no regard given to the margins need to cover overhead – is a popular but precarious pricing technique. Instead, successful dealers price merchandise according to what the market will bear. (See “Do you base your antiques inventory prices on value, cost or gut feelings?” Behind the Gavel, June 16, 2011.)

Another frequent remark: advertise. Use as many platforms as you can afford: newspaper, Google, Facebook, and email. If you have “blown through” your advertising budget, at least use signage in your store windows and around your store. A properly advertised sale will not only move out merchandise, it will build traffic beyond normal levels. Maintain signage, lighting, and displays for your best and most profitable merchandise so that customers will be attracted to those items as well.

I’d like to add that when designing signage, pay attention to how the discounts are worded. In his article in Psychology Today from 2012, Alain Samson, PhD, asserts that consumers don’t think of numbers in completely rational terms. He points out that some (but not all) of your customers will be encouraged to buy more when exposed to “Get $ Off” (achieving a gain) rather than “Save $” (avoiding a loss).

Dr. Samson says:
“Sales promotion wording can motivate people to buy — beyond the products that are actually on sale. As established by previous research already, we found that messages like “Get $1 Off” versus “Save $1” are cues that subtly stimulate promotion- versus prevention-focused people to buy more in general, not just the products that are offered at a discount.”

In the final analysis, a clearance sale should achieve two goals: It should clear out slow-moving inventory and maintain profit margins.

Good luck to all in achieving these goals with your clearance sale.