Clearance Pricing Optimization for a Fast-Fashion Retailer

Authors:
Felipe Caro;Jérémie Gallien
Affiliations:
UCLA Anderson School of Management, Los Angeles, California 90095;London Business School, London NW1 4SA, United Kingdom
Venue:
Operations Research
Year:
2012

Citing 19
Cited 0

Clearance Pricing and Inventory Policies for Retail Chains

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Abstract

Fast-fashion retailers such as Zara offer continuously changing assortments and use minimal in-season promotions. Their clearance pricing problem is thus challenging because it involves comparatively more different articles of unsold inventory with less historical price data points. Until 2007, Zara used a manual and informal decision-making process for determining price markdowns. In collaboration with their pricing team, we since designed and implemented an alternative process relying on a formal forecasting model feeding a price optimization model. As part of a controlled field experiment conducted in all Belgian and Irish stores during the 2008 fall-winter season, this new process increased clearance revenues by approximately 6%. Zara is currently using this process worldwide for its markdown decisions during clearance sales.