Markdown Season + Post-Audit Season: The Double Dip
- The HRG Team
- 5 hours ago
- 3 min read
Hand holding magnifying glass over "PRICE REDUCED" text on pink background. The magnifying glass has a golden rim.
When those two seasons overlap, suppliers get hit twice.
And when tariffs are in the mix—raising cost while pricing power is limited—the overlap becomes more common.
The double dip in plain English
Here’s the pattern:
Retail needs to clear inventory or protect traffic → markdowns/promo intensifies
Volume increases + complexity increases → more room for deal misinterpretation
Reconciliation starts later → post-audit claims and “corrections” show up months after the event
Same period. Same sales. Two separate profit drags.
Why markdowns are a finance issue, not just a merchant issue
Markdown execution is big enough that retailers treat it like a core capability. McKinsey notes markdown optimization can lift margin 400–800 bps.
So if markdowns are that consequential, merchants and finance teams will scrutinize them hard.
What often happens next is predictable: finance looks for recovery mechanisms—allowance enforcement, pricing error recovery, short-pay logic, post-audit activity, returns/defectives clean-up.
The hidden accelerant: inventory distortion
IHL pegs the global cost of inventory distortion at $1.7 trillion.
Overstocks drive markdowns. Out-of-stocks drive emergency replenishment and execution mistakes.
Both create paperwork conditions where deductions thrive:
mismatched dates
wrong item numbers
market-level exceptions
overlapping funding
A fictional example (not real)
A seasonal supplier (fictional) runs a big Q4 program with two different retailers.
Retailer A clears inventory early with an aggressive markdown.
Retailer B holds price longer, then panics when sell-through stalls and layers in a deeper discount late.
The supplier funds both in slightly different ways—one off-invoice, one bill-back—because “that’s how each retailer does it.”
Then January happens.
Returns spike (holiday reality), and NRF has consistently shown returns are enormous at the industry level—$890B projected in 2024 and $849.9B projected in 2025.
By February/March:
Retailer A files a post-audit claim tied to “deal interpretation”
Retailer B claims “allowance discrepancy” because the market list wasn’t updated
Both retailers hit the supplier with incremental returns/defectives fees
Same units. Same quarter.
Double dip.
How to reduce double-dip exposure
You don’t solve this with a pep talk. You solve it with process design.
1) Lock the “truth” of the deal
Post-audit disputes often come down to ambiguity:
ship date vs receipt date
which item list was active
which markets were included
stacking rules
If your deal language can be misread, it will be misread.
2) Build a markdown-to-deduction bridge
Most companies treat these as separate worlds:
Merchants and sales teams handle promos/markdowns
Finance handles deductions after the fact
Bridge them:
Require a deal ID that ties directly to deduction dispute packages
Store approvals, item lists, and dates in one place
Create a weekly “markdown & claims” review (short, disciplined)
3) Treat returns as a driver, not a surprise
NRF’s 2025 report also estimates 19.3% of online sales will be returned.
If your mix is shifting online (or your retailer’s is), your risk profile changes—even if your product didn’t.
Returns increase reverse logistics costs, and reverse logistics pressure often shows up as stricter claim behavior.
Where HRG fits (calmly)
When the double dip hits, the goal isn’t to fight everything. It’s to fight the right things.
HRG’s work typically looks like:
Identify where claims are unsupported or misapplied
Rebuild the deal history with proof
Recover what’s recoverable, then tighten terms so the next cycle hurts less
That’s not a slogan. It’s a discipline.
Punchline
Markdowns are the headline.
Post-audit is the footnote that costs you real money.
If you want fewer “surprise” deductions, start treating markdown season like a finance event—not just a merchandising one.
