What could be a consequence of consistently high markdowns on merchandise?

Consistently high markdowns on merchandise can lead to a higher Cost of Goods Sold (COGS) percentage increase. This is because markdowns typically involve reducing the selling price of inventory to stimulate sales. When a business frequently marks down its products, the revenue generated per item sold decreases. Consequently, if the cost to acquire those goods remains constant, the ratio of costs to revenue can shift unfavorably, leading to a higher COGS percentage.

Additionally, high markdowns can indicate issues like overstocking or pricing strategies that aren't aligned with market expectations, which may compound the impact on profitability. Identifying and addressing these concerns becomes crucial for managing overall financial health. Understanding the balance of pricing strategies is vital for ensuring that markdowns do not negatively affect gross margins and the sustainability of the business.