This page is for an agent, buyer, or retail planner explaining why marking down unsold stock costs more than the size of the price cut alone. At work, a person can treat a 20% markdown as simply "20% less profit", when the real cost also depends on how much stock is marked down, how it affects an agent's own commission, and what selling that stock at a lower price still saves compared with not selling it at all. This lesson mainly teaches the money flow: it works out, using Order A's own fixed figures, exactly what a markdown removes from a retailer's planned profit and how far that loss reaches up the chain.
Order A moves through a hybrid arrangement: part of the 15,000 pieces are pre-booked by Fairway Stores before the season starts, part are shipped later as replenishment once early sales are known. Meridian Sourcing, the agent who arranges the deal between Northline Apparel and Fairway Stores for a 5% commission, earns that commission on the wholesale value regardless of what happens to the goods afterwards. Without this skill, a buyer cannot state what unsold stock actually costs once marked down, only that a discount was applied.
You need: lesson T19-C01-L01, which shows how a retailer's own margin is calculated against its own shop price.
By the end of this lesson you can:
Not covered here: combining margin, markup, open-to-buy and markdown into one complete worksheet, covered in the next and final lesson of this course (lesson T19-C01-L05).
| Term | Meaning |
|---|---|
| Markdown | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
| Agent | An independent business that is paid a commission for arranging or managing an order on behalf of whichever side hired it. |
| Commission | A payment to an agent, normally a percentage of the order value, agreed in advance in the agency agreement. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Hybrid selling model | A brand that sells through more than one route to market at once, for example wholesale and its own direct retail, often at different prices. |
Once goods are sold wholesale to a retailer, any later markdown the retailer applies to its own shop price is a cost the retailer alone absorbs; it does not reopen the wholesale price already paid to the factory or brand, and it does not reduce an agent's own commission, already earned on that completed wholesale sale. A markdown is always measured against the retailer's own original shop price, and its cost is the difference between the planned full-price profit and the profit actually earned once goods sell at the reduced price, multiplied by however many pieces sold at that reduced price rather than at full price.
A buyer or agent meets several shapes of this cost across a normal working year, and separating them prevents one company's loss from being wrongly assigned to another.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Export order sold through an agent on commission | Meridian Sourcing earns its 5% commission on Order A's wholesale value once the sale to Fairway Stores completes, before any markdown decision is even made. | The agent's own income is fixed at the point of sale; a later markdown at retail does not claw back commission already earned. |
| Hybrid pre-booked and replenishment volume | Part of Order A's 15,000 pieces are pre-booked before the season starts, and part are shipped later once early sell-through is known. | Replenishment volume can be trimmed if early sell-through is weak, reducing how much stock ever needs a markdown, unlike a fully pre-booked order. |
| Markdown taken to clear remaining stock | Fairway Stores marks down Order A's shop price by 20% once sell-through falls behind plan late in the season. | A markdown accepts a lower profit per piece in exchange for actually selling the stock, rather than holding it unsold indefinitely. |
| Promotion run to drive extra sales while sell-through is still on plan | Fairway Stores runs a short price promotion earlier in the season, while sell-through is still on track, to build extra volume rather than to clear a shortfall. | A promotion is a planned choice to trade some margin for volume; a markdown is a reaction to stock that has already fallen behind its own forecast. |
Fairway Stores' own shop price on Order A is USD 19.90. Partway through the season, sell-through falls behind plan, and 4,000 of the 15,000 pieces remain unsold. Fairway Stores marks the shop price down by 20% to clear the remaining stock, a reduction of USD 3.98 per piece, giving a sale price of USD 15.92. Meridian Sourcing's own 5% commission was already earned on the full wholesale value when the order was placed, and is not affected by this later retail decision.
The markdown removes 8.9% of Fairway Stores' own total planned profit on Order A, even though it only affects 4,000 of the 15,000 pieces, because the loss is concentrated entirely inside that smaller group rather than spread evenly across the whole order. Meridian Sourcing's own commission, already earned on the wholesale sale, is unaffected by any of this.
The methodA common mistake is assuming a 20% markdown removes 20% of a retailer's whole planned profit on an order, when it only removes profit on the pieces actually sold at the reduced price. What this costs a buyer or agent who gets it wrong is a wrong estimate of the season's real result: overstating the loss can lead to cutting a style's future orders unnecessarily, while understating it, by forgetting that the loss concentrates entirely in the marked-down units, can leave a retailer surprised at how much profit a partial markdown actually removed. A separate mistake is assuming an agent's own commission changes when a retail markdown happens; it does not, because commission is earned once on the wholesale sale, at a point in the chain a later retail markdown never reaches.
A markdown is a price cut a retailer applies to its own shop price once stock is not selling as planned. It only costs money on the pieces actually sold at the lower price, not on the whole order. An agent who already earned a commission on the original wholesale sale keeps that commission regardless of a later retail markdown, because the two events happen at different points on the chain. A promotion is a different, planned choice to trade some margin for extra volume while sales are still on track, not a reaction to stock already behind plan. Working out a markdown's real cost means multiplying the price cut by the pieces actually affected, never applying the percentage to the whole order's planned profit.
After Fairway Stores marks down 4,000 unsold pieces of Order A by 20%, a junior buyer at Fairway Stores emails Meridian Sourcing suggesting that, since the retailer's own profit fell, the agent's commission on the order should be reduced to share the loss.
Here is the email Fairway Stores' buyer actually sent:
Should Meridian Sourcing's commission be reduced because of this markdown? Decide before opening the answer.
No. Two facts decide this, both already in the buyer's own email and this lesson.
First, Meridian Sourcing's commission was earned on the wholesale sale, a separate, already-completed event. The agent's 5% commission is calculated on the wholesale value agreed between Northline Apparel and Fairway Stores at the time the order was placed, not on whatever Fairway Stores later earns or loses at its own shop price.
Second, the markdown is a retail-side decision made entirely inside Fairway Stores' own business. Fairway Stores chose its own shop price of USD 19.90 and its own markdown of 20%; neither Northline Apparel nor Meridian Sourcing had any part in that later pricing decision, so neither should share a cost created at a different point in the chain.
Meridian Sourcing's commission should not be reduced. The USD 15,920 markdown cost is Fairway Stores' own cost to absorb, exactly as its own USD 178,500 planned profit was always going to be its own to keep.
Using Order A's own fixed figures:
Even a single order's markdown would cost Meridian Sourcing USD 534 in reduced commission under such a request, for a decision it had no part in making. Across many orders in a season, agreeing to share retail-side markdown costs would steadily erode an agent's own income for risks that belong entirely to the retailer's own pricing decisions.
Open the course workbook's "Markdown impact" sheet. It records the shop price, the markdown percentage, the number of pieces affected, and calculates the markdown's total cost and its share of planned profit automatically, kept in a separate section from the agent's own commission calculation so the two are never mixed.
[Download the Retail profitability worksheet](../../templates/T19-C01-retail-profitability-worksheet.xlsx)
1. Fairway Stores marks down 2,000 pieces of a different order by 25% off a shop price of USD 20.00. What is the total markdown cost?
2. Why does an agent's own commission stay the same after a retailer marks down unsold stock?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Markdown | تخفيض السعر | Démarque | İndirim (markdown) | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | معدل البيع الفعلي | Taux d'écoulement | Satış oranı | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
| Agent | وكيل | Agent | Acente | An independent business that is paid a commission for arranging or managing an order on behalf of whichever side hired it. |
| Commission | عمولة | Commission | Komisyon | A payment to an agent, normally a percentage of the order value, agreed in advance in the agency agreement. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Hybrid selling model | نموذج بيع مختلط | Modèle de vente hybride | Karma satış modeli | A brand that sells through more than one route to market at once, for example wholesale and its own direct retail, often at different prices. |
You now know what a markdown costs a retailer's own planned profit. The final lesson of this course brings margin, markup, open-to-buy and markdown together into one complete worksheet. Back to the course map