Got a bunch of stock that you’re struggling to sell? You’re not alone. The question of how to deal with underperforming stock is all too common. Dropping your prices with a stock clearance sale is one popular option.
Except: seeing stock go that you paid so much for is easier said than done. But it’s called stock clearance for a reason. Think of it like clearing out your garage or home – freeing up much-needed space and any capital you had tied up in the stock.
In this guide, we’ll cover the basics of running a stock clearance sale, from sales discount rates to duration. And we’ll explore our 5-step proven plan for a successful clearance sale.
- What is a Stock Clearance Sale
- How Big Should Your Sales Discount Be?
- Retail Sale Duration
- 5-Step Plan for an Effective Stock Clearance Sale
What is a Stock Clearance Sale
Let’s be clear: a stock clearance sale isn’t a permanent markdown on your prices. It is a short, sharp reduction for a limited period of time to clear out specific items. That could be for a new season or because a product line isn’t selling as well as you hoped.
Major retail brands routinely use sales discounts to deal with excess stock. Unfortunately, clearance sales are a much misunderstood and misused element of running a product business.
Stock clearance is your secret weapon to remove poor-performing stock without damaging your brand. Running a sale twice a year frees up money already sunk into stock. That can then be put to better use on higher-performing items (or next season’s products).
How Big Should Your Sales Discount Be?
Perhaps the biggest question when determining a discount pricing strategy is how big to cut. Cutting by 50% isn’t unusual. As a golden rule, your sales discount should be inversely proportional to the product’s popularity.
Put another way: the less popular a product, the greater the discount.
Sometimes, that can mean selling a product for less than you paid for it. But a product you can’t sell is worth less than the cash after a discount. However, you’ll still want to consider your overall margins. High street retailers operate upwards of 75% margin – they can afford to run big discounts regularly. Smaller businesses can’t run on these kinds of margins – especially if a large proportion of stock ends up in the sale.
Retail Sale Duration
Do you ever feel like sales go on forever? Once upon a time, Boxing Day sales lasted for a week or so after Christmas – with the crescendo in the first few days – and another sale just after Summer. Now, there’s Spring sales, Autumn sales, and even a Black Friday sale. The sales never end.
Even the original sales periods last longer and longer: big retailers run a post-Christmas sale for 6-8 weeks and a midseason sale for 3-4 weeks or longer.
That’s too long!
Your sale should be 2-3 weeks long, twice a year. You’re not aiming to clear your entire stock; you want to clear stock that won’t go as quickly as possible. Moreover, avoid launching new products until after the sale – it’s too confusing messaging.
Plan your sales discounts, clearances, and product launches in a calendar to ensure customers know what to expect when; and to ensure you don’t discount any product just before a sale. That reduces the oomph behind your stock clearance sale launch.
5-Step Plan for an Effective Stock Clearance Sale
1. Plan Your Clearance Sale
Don’t run a sale on the fly – plan, plan, plan. Some key questions you’ve got to answer are:
- How long will your sale run for?
- How big will your discount be? And will you start with your maximum discount?
- What will you do with unsold stock after the sale?
- How will you get the message out?
- What is going to go on sale?
Sales events should be meticulously planned and executed to be effective without adversely affecting a small business’s profitability. Consider two discount pricing strategies:
- Start with a large discount (e.g., 50%) on all items to create buzz and ensure you sell all the stock within the designated time frame.
- Incrementally increase the sales discounts to maximise your revenue. Usually, this entails running a longer sale.
Evaluate which pricing strategies have previously been effective and learn from past mistakes. If past sales lacked traction, it may be due to insufficient discounts. Conversely, try a less generous discount pricing strategy if your stock flooded off the shelves last time.
After the sale ends, will you continue your discount until everything goes, or will you simply give it away? Balance your priorities. Platforms like eBay or Depop are one option – and it’s possible to sell without linking to an official account. You can also sell excess stock to ‘jobbers’ or outlets like TK Maxx. Finally, donating old stock to charity for tax reductions can make your accountant happy – although it’s usually your last option.
2. Analyse Your Stock
The big question: what products will go on sale?
Perform a thorough sock assessment to understand inventory levels. Look at the starting stock levels, your average sales per week of an item, and project forward to see how long stock levels will last based on current pricing. Then, estimate the same metric using typical sales discounts – i.e., the ‘number of weeks cover’ method.
For example, if you have 100 apples and, in a typical week, you sell two apples, then you have 50 weeks of apples covered (100/2=50). Or, if you’ve got ten pairs of earrings and you average five sales per week, then you’ve got two weeks of stock (10/5=2).
Based on this analysis, identify underperforming stock lines and add them to your sales list. As a general rule, only 20-25% of lines should go into a sale. Adding too many product lines can jeopardise your overall business profitability.
3. Determine Your Price Messaging
Too often, brands confuse their pricing messaging. New product launches occur alongside the sale. There are discounts occurring in the weeks leading up to a major sale. And even during the sale, the ‘sale theme’ is scattered.
Your sale should be encapsulated in a simple discount slogan. Think:
- Up to 50% off
- Necklaces from £10
- Buy one, get one free
- Save £20 on purchases of £100 or more
Try to make your slogan as simple to understand as possible. ‘50% off everything’ couldn’t be clearer; ‘up to 50% off,’ on the other hand, means that only the slowest turnover stock sees the biggest discount. The former creates a sense of urgency (especially if it’s a limited offer); meanwhile, the latter can lead to disappointment as customers start to browse the shelves.
In addition, check your sales messaging is 100% compliant with legal requirements, and ensure products have been at full price for 28 days before discounting; otherwise, you undermine your discount pricing strategy.
4. Ensure Consistent Messaging Through the Sale Event
Whatever your pricing strategy, don’t confuse your customers. Stick to the sale message for at least a week at a time. For sales longer than a week, consider changing your messaging – for example:
Don’t automatically adjust the message – you should only alter the promotional messaging based on how long the sale is progressing.
Most of all, announce your sale prominently and clearly. There are no rewards for subtlety. And, of course, ensure your promotional messaging matches the sales discounts on the shelves.
5. Spread the Word
Stock clearance sales are a big deal! (Or they should be.) Think about how you’ll spread the word. Popular options include:
- Email newsletters
- Social media ads
- Influencer partnerships
- In-store advertising
Create a concrete promotional plan detailing how you’ll get customers to learn about your sale. Be bold and provocative – red sales posters and banners, for instance, are hard to ignore. (We’re psychologically wired to take notice of red.)
Forget about stylish branding and design – the goal is to alert customers not to maintain perfect aesthetics during the sale period.
If in doubt, take tips from high street retailers. Look at what works for them, which promotional messages grab your attention the most, and follow the same outline (with your own twist).
Stock clearance sales aren’t a loss of profit – they’re a tool in your arsenal. When short and sharp, they’ll help release money locked up in poorly performing stock, clearing space in your store and preparing you for the next phase of the retail year.
Want to learn more? The Resilient Retail Club’s Catherine Erdly explores this topic in more detail in episode #17 of The Resilient Retail Game Plan – the dedicated small business podcast. Listen on Spotify.
Join the club for more expert advice on running a profitable retail business! Membership includes one-on-one help from Catherine and is guaranteed to take our business to the next level.