How much markdown can a clothing boutique afford?
Test clothing markdowns with garment costs held in dollars, then compare profit with cash left after buying the next collection for a small leased boutique.
Published by StartFigures · Editorial standards · Correction guidance
At unchanged unit sales, this clothing-boutique case can absorb about 8.2% in further weighted price reductions before its monthly operating surplus disappears. That is a scenario threshold, not a recommended discount. Use the actual landed cost of the garments being marked down, recalculate the contribution, and keep the next collection's supplier payment inside the cash plan.
The StartFigures clothing boutique case describes a small leased adult-apparel shop with a paid owner-manager and part-time retail staff. All examples below are authored U.S. planning assumptions in constant 2026 dollars. They are separate from the seller's prefilled illustrations and from observed performance at a real store. The input evidence register explains the source limits.
Start with the price actually retained
The useful starting price is the amount retained after ordinary promotions and expected selling-value refunds, excluding buyer sales tax. A tag price before discounts overstates the money available to cover the garment, the team and the shop.
The case assumes 22 completed orders per day at a $68 net basket, six trading days per week and 4.33 weeks per month. A basket is illustrated as 1.6 sold units at a weighted $42.50 net price. Those assumptions produce $38,866 in mature monthly sales. Repeated purchases already belong in the completed-order count; they are not an additional sales stream.
Selected landed sold-merchandise cost is 49% of that baseline sales amount. Stock losses take another 1.5%, bags and incremental returns handling 0.5%, and payments 3%. This leaves 46% contribution before fixed costs. It is a modeled cost structure, not an independent-boutique average.
The merchandise cost follows the items, not their tag prices. If the same garments sell for less, their acquisition cost remains in dollars. Treating every extra markdown as a price change while retaining 46% contribution would imply that the supplier also reduced the cost of garments already bought.
Dillard's fiscal 2025 filing identifies markdown exposure when merchandise does not sell as expected. Its Pricing discussion links lower selling prices with lower margin and cash flow. This supports the mechanism; it does not establish a markdown rate for this independent shop. Dillard's Form 10-K.
Reprice the same garments before approving a promotion
At base activity, merchandise, stock losses and bags/handling together cost $19,822 monthly. The following test holds that physical-cost pool and sold units constant. Only realized selling prices and the selected payment allowance change.
| Further weighted price reduction | Net basket | Monthly sales | Contribution | Operating result |
|---|---|---|---|---|
| None | $68.00 | $38,866 | 46.0% | $3,078 |
| 5% | $64.60 | $36,923 | 43.3% | $1,193 |
| 10% | $61.20 | $34,979 | 40.3% | -$692 |
| 15% | $57.80 | $33,036 | 37.0% | -$2,577 |
Each row deducts the same $19,821.70 physical-cost pool and 3% of its own net sales before the fixed cost. For example, the 10% row is $34,979.47 of sales less $19,821.70 and $1,049.38 of payments, leaving $14,108.39 for $14,800 of fixed costs. Displayed whole dollars are rounded from these calculations.
The 8.2% threshold follows from the same equation: reduced sales × 97%, less the physical-cost pool, must equal fixed cost. It is a weighted reduction across the basket. A 20% discount on one fifth of otherwise equal sales would reduce the whole basket by 4%, assuming quantities and the rest of the prices stay unchanged. Different garment costs or additional units change the result.
This test does not predict how shoppers respond. A promotion may sell more units, free display space or prevent later losses. Those benefits need their own quantity and cost assumptions. Nor does the table say that every discount below the threshold is sensible: stock-payment timing can still create a cash shortfall.
The 3% payment assumption is a simplified allowance. Square's U.S. Free-plan card-present rate is 2.6% plus $0.15, while the case allows for card use, checkout tax and rounding. A fixed fee per transaction means payment cost does not fall perfectly in proportion to a lower basket. Replace the allowance with the actual tender, transaction and refund schedule for a decision close to the threshold. Square processing fees.
Separate the buying decision from the markdown decision
A garment already purchased has a sunk acquisition payment for the immediate clearance decision. Its cost still matters to reported margin and to the next buying decision. Do not reject every below-cost clearance solely because the original purchase was expensive, and do not describe clearance receipts as proof that the original buy was profitable.
Consider a separate lot of 100 garments, each costing $24 landed. Assume 70 sell at $60 and 30 at $36. Prices are net of expected refunds and exclude sales tax; payment cost is simplified to 3% of sales.
| Calculation | Amount | Meaning |
|---|---|---|
| Full-price sales | $4,200 | 70 × $60 |
| Markdown sales | $1,080 | 30 × $36 |
| Total net sales | $5,280 | $4,200 + $1,080 |
| Cost of garments sold | -$2,400 | 100 × $24 |
| Payment allowance | -$158.40 | 3% × $5,280 |
| Lot contribution | $2,721.60 | Before staff, premises, bags, losses and other store costs |
The $36 clearance price is 40% below the $60 tag price. Because only 30 of the 100 sold units receive that reduction, the weighted selling price is $52.80, or 12% below an all-$60 lot. A discount percentage on the clearance rack and the reduction across the entire sold basket have different denominators.
This lot's cost and markdown mix differ from the aggregate store case. Its contribution should not be substituted for the store's contribution percentage. It is a buying example with its own assumptions, not evidence that this quantity or price will sell.
A larger purchase can leave profit unchanged and cash lower
Now suppose the shop buys 180 garments at the same $24 landed cost but sells exactly the same 100 garments at the same prices. The extra 80 do not become an expense merely because they remain on the rack.
| Lot diagnostic | Buy 100 units | Buy 180 units |
|---|---|---|
| Cash paid for stock | $2,400 | $4,320 |
| Units sold | 100 | 100 |
| Sales less payment allowance | $5,121.60 | $5,121.60 |
| Sold-goods cost | $2,400 | $2,400 |
| Lot contribution before fixed costs | $2,721.60 | $2,721.60 |
| Inventory remaining at cost | $0 | $1,920 |
| Cash after stock payment and payment fees | $2,721.60 | $801.60 |
The larger buy uses an extra $1,920 in cash while leaving the contribution from sold garments unchanged. That $1,920 is held in remaining stock, assuming the stock still supports its cost value. Its eventual selling price, timing and salability remain unresolved. It cannot pay the next wage bill while it remains inventory.
The cash row subtracts the purchase payment once. The profit row subtracts only the cost of sold garments. Subtracting both the entire purchase and sold-goods cost from the same profit calculation would count the sold merchandise twice.
IRS Publication 334 explains inventory and the cost-of-goods-sold bridge, including freight-in and closing stock. It also notes small-business accounting exceptions. The planning distinction here is economic; the operator's accountant needs to select the appropriate tax treatment. IRS Publication 334.
Protect the next buy with a dated stock review
The store case assigns separate funds to opening merchandise and liquid reserve. Its paid roster and premises remain payable while new customers arrive. The same first-year ramp produces an operating cash-use diagnostic before later operating surplus; it does not predict when suppliers require payment.
Before committing to a collection, record what can be paid after already committed invoices, taxes and recurring bills. Then compare that available cash with the proposed landed purchase, deposit and delivery schedule. A supplier credit counts only when its amount and collection or offset date are supported.
A practical merchandise review records style, color and size; received units; net sold units; current salable stock; age; realized selling price; landed cost; and an agreed review date. Inspect the useful size curve, not only total units. A style with many remaining units may still lack the sizes customers want.
Keep the owner role visible. In this case, the owner has paid buying and administration time as well as floor duties; staff support fitting, sales and receiving. A markdown event that adds fitting-room or checkout peaks can require more paid cover. BLS describes these retail duties and variable schedules; it does not certify a store's peak capacity. BLS retail sales workers.
The matching Financial Model has a visibly confirmed visitor/conversion and repeat-order structure, with units, category mix and prices. That preview does not prove a native size-level replenishment ledger or a reconciled trading calendar. The website's worked cases are independently authored. The matching Business Plan describes the editable plan and an online operating outline that needs the actual local assortment and purchase terms.
