Clearance Pricing Optimization for a Fast-Fashion Retailer

Felipe Caro () and Jérémie Gallien ()
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Felipe Caro: UCLA Anderson School of Management, Los Angeles, California 90095
Jérémie Gallien: London Business School, London NW1 4SA, United Kingdom

Operations Research, 2012, vol. 60, issue 6, 1404-1422

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.

Keywords: retailing; markdown pricing; clearance sales; fast-fashion; revenue management; forecasting; field test; model implementation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (53)

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