Why disciplined, data-driven clearance pricing determines retail profitability in Q1

Every retailer knows that January brings its own kind of chaos. As a colleague of mine from Walmart once said, “January is for returns, exchanges, and waiting for Valentine’s Day displays to go up.” But behind the scenes, it’s also the month when teams roll up their sleeves to get clearance pricing right. When every markdown counts, the retailers who thrive are the ones who structure their approach to clearance pricing, align with vendor funding, and make reductions based on the whole commercial picture, not intuition.

What really matters in Q1: getting clearance pricing right

January is one of the most operationally heavy months in retail. Inventory work and returns take over the front of house, but the real commercial pressure happens behind the scenes. Clearance pricing becomes the deciding factor in how much margin is protected or lost once the season resets.

Clearance pricing is not about cutting prices. It is about sequencing decisions so that each reduction aligns with the commercial reality behind the product. The retailers who manage January well are the ones who approach clearance pricing with structure.

4 factors influencing clearance pricing strategy:

1. Know the real cost behind the item, not just the list cost
   Clearance decisions fall apart when buyers focus only on the surface cost. What really drives the right exit price is the underlying terms:
   • Funding from the vendor
   • Marketing support committed earlier in the season
   • Rebates triggered at volume tiers
   • Prior promotions that already pulled margin forward
   
   Without this visibility, the first markdown is a guess.
   
   
2. Build the markdown ladder with intention, not noise
   A price drop should follow a plan. The timing, the depth and the triggers should all be connected to data, not guesswork. The difference between a three-step ladder and a five-step ladder can determine whether stock clears in January or gets dragged into February. Retailers who get this right work from a margin-based view rather than a calendar-based one.
   
   
3. Align clearance with vendor agreements
   Many categories have products where the vendor shares the exit burden. The retailers who perform best in January are the ones who treat clearance as a continuation of the commercial negotiation, rather than an isolated event. When funding, rebates, and terms are clear, buyers can make sharper decisions without sacrificing profitability.
   
   
4. Ensure pricing teams, buyers, and planners are working from the same truth
   In January, speed matters. If teams are working from different spreadsheets with different assumptions, the process gets messy fast. The organizations that handle clearance best are those with a single, trusted view of costs, terms, and funding. Retailers gain the biggest advantage when they bring all the commercial pieces together—pricing, vendor funding, agreements, rebates and markdown performance. That’s not a sales pitch; it’s simply the reality of January. When your team can see the full commercial story in one place and make data-driven decisions, you’re able to clear product aggressively without sacrificing margin.

Go low but stay standing

At this time of the year, every retailer is playing a version of a clearance limbo game, where the goal is to go low enough to move inventory, but not so low that you hit the floor on margin. Because January will always be about selling through the tail of the season, the retailers who win are not the ones who discount the fastest. They are the ones whose clearance prices are built on facts, aligned with funding, and executed with discipline.

That is what January really demands for strong retail performance.