Markdown Money

Markdown money is a payment or credit a vendor gives a wholesale account to fund part of the markdowns the account takes on that vendor's goods; it is also called a markdown allowance or markdown support. The account bought the goods at a price that assumed a margin, and when they sell through below plan the account's margin falls. Markdown money shares that loss with the vendor, alongside the other settlement tools in a wholesale relationship: a return to vendor authorization, a discount against a future order, or a straight credit.

How it is negotiated

The claim starts from the account's sell-through and margin on the vendor's goods, measured against the margin both parties expected when the order was written. Some support is agreed up front in the order or the vendor agreement; some is negotiated after the fact, when the account presents the markdowns it took. The alternatives frame the negotiation: a return to vendor puts the inventory back on the vendor's books, while markdown money leaves the goods with the account and moves the cost instead. The account is protecting its category margin and the vendor its place in the next order, so the settlement and the next buy are linked whether or not they are discussed together.

How it is recorded

On the vendor's side, markdown money is a deduction from gross wholesale sales, settled as a credit memo or as a deduction the account takes against open invoices. The site's markdown percent formula counts markdown allowances to accounts inside markdown dollars, and gross-to-net sales shows the full gap between gross and net. On the account's side it reduces the cost of the vendor's goods: cost of goods sold for units already sold, carrying cost for any still on hand. It never restores the retail value the markdown removed. For planning and hindsight, attribute markdown money to the season whose markdowns it funded, whenever the credit is agreed or arrives; how and when each side recognizes it in its financial statements is a question for finance.

Why the wrong period distorts margin and open-to-buy

The figures below are illustrative, chosen because they divide cleanly; they are not benchmarks and are not drawn from any brand. An account's category earns $90,000 of gross margin on $200,000 of net sales in season one, after markdowns on one vendor's goods. The vendor agrees $12,000 of markdown money for those markdowns, and the credit arrives in season two, when the category earns $96,000 on another $200,000.

Booked in the season it funds, the category's margin fell three points. Booked when the credit arrives, the same category appears to gain nine. The open-to-buy distortion runs through the reductions line: a hindsight that reads season two's markdowns net of the credit carries a markdown history $12,000 lighter than the price reductions actually taken, and a retail-method open-to-buy built on that history under-plans receipts by the same amount, because the stock's retail value falls by the full markdown whoever funds it. On the vendor's side, a deduction booked late flatters the season it funded, and a hindsight that credits those styles with margin they did not keep writes deeper buys for them.