Markdown Allowances - Definition & Meaning

Published in Marketing and Strategy Terms by MBA Skool Team

What is Markdown Allowances?

Markdown is the temporary reduction of the original selling price of an item. It may be due to any reason like fall in demand, competition, market forces etc. It can also be used strategically to drive a competitor out of the market. Permanent markdowns are created to sell off an item that is sold slowly from the inventory.

Markdown allowance is obtained from negotiations with vendors or manufacturers to offset expenses made by the retailer to sell the vendor's merchandise. This money may be used to reduce the unexpected markdowns and cover losses from defective merchandise.

These allowances are taken by retailers against vendors when putting merchandise on sale. This is done so that retailers and vendors should share some of the inventory and sales risk. Generally credit is given to these retailers by the manufacturing companies when the retailers are not sure of the sales of the company and want security for the sales of the goods.

Manufacturers who are powerful and are sure of their sales don’t generally give these markdown allowance since this will affect the cash flow the manufacturer. But when the manufacturer is less powerful and are new to the category or market they generally give markdown allowance.

Hence, this concludes the definition of Markdown Allowances along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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