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Clearance Pricing Optimization for a Fast-Fashion Retailer

Author

Listed:
  • Felipe Caro

    (UCLA Anderson School of Management, Los Angeles, California 90095)

  • Jérémie Gallien

    (London Business School, London NW1 4SA, United Kingdom)

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.

Suggested Citation

  • Felipe Caro & Jérémie Gallien, 2012. "Clearance Pricing Optimization for a Fast-Fashion Retailer," Operations Research, INFORMS, vol. 60(6), pages 1404-1422, December.
    • Handle: RePEc:inm:oropre:v:60:y:2012:i:6:p:1404-1422
    DOI: 10.1287/opre.1120.1102
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    References listed on IDEAS

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