Here’s your pop quiz for the day:
What’s the difference between clearance and a sale?
If you said that they’re both terms used to describe products being sold at reduced prices, you’re on the right track. But that’s where their similarities end.
As American Retail Supply points out, some people believe that the terms “sale” and “clearance” are interchangeable, but, in fact, they are used for two different occasions in retail.
What Does Clearance Mean?
“Clearance or closeout is permanently removing merchandise, often one-offs and items that did not sell,” says The Retail Doctor. Clearance sales help you recoup some of your money when items don’t sell within a profitable timeframe.
Whether the items are going out of season, or they’re from a particular product line that’s being closed out, inventory clearance provides a fresh start by making room for new products in your store.
In April or May, for example, you may put winter coats on clearance because there’s no longer any reason for consumers to buy winter clothes during the summer. Items on clearance will typically be priced lower than traditional sales since they tend to be for items that shoppers aren’t willing to buy, unless it’s for a real bargain.
“Unlike a sale, says American Retail Supply, “the price of an item on clearance will not go back up. The longer an item is up for clearance, the lower the price tends to go before the store decides to pull it from the inventory.”
How Does a Sale Differ from Clearance?
A sale differs from clearance in that it’s a promotional strategy used by businesses to attract more customers and attain a high turnover rate, explains American Retail Supply.
Sales are often promotions of a specific brand or even a store-wide discount. They typically offer reduced prices on popular items and may include such promotions as Buy 1, Get 1 Free specials.
Store-wide sales often occur around special occasions such as holidays, back to school shopping, etc. Sales last for a limited time only, before the retail price on the promotional items goes back up. A shirt on sale for $15 at a department store, for example, could be priced at $25 several weeks later.
This tactic serves to create urgency, encouraging consumers to take advantage of sales in order to spend less, before the price of items go back up. There’s also a good chance that once you get them through your doors, customers will spend more on other products, in addition to the sale items.
Let’s quickly recap what we’ve learned about the differences between a sale and clearance before we move on:
- Sales last a limited time only. Clearances last indefinitely, until the items are sold or completely pulled from inventory.
- Sales are used to attract customers to the store. Clearances are used to help sell unwanted inventory and make room for new products.
- Sales typically occur on widely popular items. Clearances are used to get rid of outdated, unpopular, or seasonal products.
How to Clear Out Your Old Merchandise
If that special toy you just knew would sell out immediately hasn’t sold after eight months, you’ve already lost the money. Leaving it sitting on your display shelves won’t make that fact any less true, but it does make your entire store look dated and out of touch, suggests The Retail Doctor.
Here are his tips for clearing out products that aren’t doing you any favors:
1. Start out your clearance with clearance sale signs at 30% off marked prices for one week.
Use social media or email to alert customers about the great bargains you’re offering. Don’t forget to tell them that selections/quantities are limited to get them off the couch and into your store.
2. The following week, mark down whatever merchandise is left at 60% off for another week.
Once again, don’t forget to alert your social media followers!
3. After that week is up, donate those items to charity. If you have to, write off the items as a loss and throw them out. Whatever you do, don’t let them stay in your store or backroom!
Once you have aggressively cleared out your unwanted items, do a physical inventory. This will give you a good idea of the new items you need to purchase.
Whether another season is winding down or you’re trying to get rid of an unpopular line of products, there is bound to be leftover merchandise at some point that needs to be put on clearance to get it out the door.
A generic promotion or storewide 20% sale isn’t going to help you do that. Putting old clearance items on sale makes it possible to buy new inventory and give your store a fresh start.
Worried that you’re not going to get back whatever you paid for your inventory? Don’t. You’ve already lost the money. Not only are those unwanted products killing your cash flow, they’re also keeping you tied to the past. Take a cue from Zara, whose made friends with their clearance sales and enjoys a 13% boost to their annual revenues!