Clearance Pricing Optimization for a Fast-Fashion Retailer

35 Pages Posted: 27 Dec 2010  

Felipe Caro

University of California, Los Angeles - Anderson School of Management

Jérémie Gallien

London Business School

Date Written: November 24, 2010

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 designed and implemented since 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.

Suggested Citation

Caro, Felipe and Gallien, Jérémie, Clearance Pricing Optimization for a Fast-Fashion Retailer (November 24, 2010). Available at SSRN: https://ssrn.com/abstract=1731402 or http://dx.doi.org/10.2139/ssrn.1731402

Felipe Caro (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jérémie Gallien

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://faculty.london.edu/jgallien/

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