Clearance pricing optimization for a fast-fashion retailer

Gallien, J and Caro, F (2012) Clearance pricing optimization for a fast-fashion retailer. Operations Research, 60 (6). pp. 1404-1422. ISSN 0030-364X

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.