Wednesday, November 24, 2010

Deciphering the mysterious Anthropologie sale cycle



There are four or five common questions I get from the community. Without a doubt the most common one is "Do you think x item will go on sale this week?" followed closely by "When do you think y item will get a second cut?". So I thought it was time to write a post about Anthro's sale cycle. Note that since I don't work for Anthropologie this is all based on personal experience and not based on any hard evidence, just my observations.

The first thing to note is that Anthropologie's markdown cycle is not linear. Every item is on its own cycle. Meaning you can't program it into your TI-83. Don't bother making a calendar appointment for 90 days from now. Anthropologie does not introduce an item and mark it down automatically 30, 60 or 90 days later. In the past this seemed to be the way it went but those days are gone.

Even the day items are marked down is no longer consistent. Typically markdowns happen on Tuesdays. But not always. Usually markdowns happen every two weeks, or every week during Free Shipping promotions (like the one currently running). But not always.

So how does Anthropologie decide which items to put on sale? I have a few theories. And really these apply to any retailer with a good inventory/ERP system. They're all watching for these same indicators.

My theory is that stock is evaluated on the following criteria (in order):
1. How well is the item selling? This is the most important question. Anthropologie rotates its store stock constantly, so it can't afford to let an item that's not selling languish on the racks. Their store space is just too valuable. If an item isn't selling it's going to get yanked off the floor quickly. If online sales aren't picking up the slack it's headed for a markdown. We can't really tell from the outside how well an item is doing, but we can take educated guesses.

2. How long has the item been out? Every retailer has 4-6 seasons of clothing. You don't want items from Summer out for sale when your Fall clothing hits, so those Summer goodies are destined for the sale rack. There are exceptions to this of course -- some items (like cardigans or work basics) can span seasons easily. Those are less likely to get quick markdowns. Items like party dresses are very seasonal and unless they have a classic design are destined to stay full price until after their season, and then quickly head to sale.

3. Is the item on sale at a competing store? This obviously isn't an issue for in-house labels, but I've noticed that with denim especially if a bunch of other retailers have marked down an item it goes on sale at Anthro too. Speaking of which...

4. Is the item from an in-house label or an outside designer? This really comes down to margins for Anthropologie. In theory their margins are lower on an outside design because they've paid a designer to sell the item, meaning Anthro wants to sell the item at full price to make the most profit. So those items are unlikely to get marked down.

5. How big was the item order? If an item is ordered in limited quantities it's not likely to go on sale. Like number 1 this isn't something we can really tell from the outside, but Anthro knows. This is also less of a factor than it used to be now that Anthropologie sources through several production houses.

Next, each of the 5 criteria above are weighted. So if an item isn't selling well (1), it's more likely to get marked down than if it's on sale at a competing store (3) or even if it's by an outside designer (4). An older item (2) might not get marked down for a long time if it's selling well (1).

Once an item does get marked down, the 2nd cut game begins. Again, there is no definitive timetable for markdowns. Some items might get a 2nd cut after 2 weeks. Some may never get one. It comes down to margins. If the profit will be better by waiting for an item to sell out no matter how long it takes, it's less likely to get cut. But if an item is more expensive to the business taking up space on the racks than it is marked down again, it gets a 2nd cut. Or a 3rd, or whatever.

How do you decide whether to take the plunge on an item at full price, sale, or wait for a 2nd cut? If you are determined to wait for sale, your chances of scoring an item marked down quickly (aka not selling well) at 2nd cut price are better. If an item sold well it's likely to get snapped up once it finally does go on sale. You're basically gambling; playing the odds. What are the odds of you finding one of an item in your size once it hits the price you're waiting for? For a poorly selling item, chances are good. For an item selling well, your chances are poor.

Additionally, items out of season have a better chance of getting further cuts even if the item was originally popular. So a summer dress that just went on sale now (nearly winter) is likely to get a 2nd cut. Many people have moved on from wanting that item.

From a more subjective point of view, the standard I use to buy an item is this: if it's something I need, it's versatile and a classic design, I invest at full price. If it's something I HAVE TO HAVE (you know what I mean), I splurge at full price. If it's something I love but don't need, I wait for sale. If it's something I could see myself wearing but don't need, I either wait for sale or don't buy it. Often time heals my cravings. I buy probably about 15% of what I originally crave. Sensability (and my budget) usually win out. I also try to avoid the "well it's on sale so it's such a deal I need it!" reasoning. If I buy those items they almost end up getting donated a few seasons later. Not worth it.

Do you have any tips or tricks for judging when an item may hit sale? How do you decide which items to buy at full price or when to wait for sale?