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TIMING AND MAGNITUDE OF RETAIL STORE MARKDOWNS ON CLOTHING ITEMS IN STA. ROSA CITY, LAGUNA MARIEL ANGELA PIEDAD SORIANO SUBMITTED TO THE FACULTY OF THE DEPARTMENT OF ECONOMICS COLLEGE OF ECONOMICS AND MANAGEMENT UNIVERSITY OF THE PHILIPPINES LOS BAÑOS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR GRADUATION FOR THE DEGREE OF BACHELOR OF SCIENCE IN ECONOMICS APRIL 2009 i BIOGRAPHICAL SKETCH Mariel Angela Piedad Soriano was born on May 04, 1988 in Manila. She is the eldest among the tres marias. Ma-an took the first five years of her elementary education at Camarines Norte State College-Abaño Elementary School, where she was accelerated from Grade 4 to 5 through the Acceleration Learning Program for Elementary Schools of the Commission on Higher Education. During those times, she actively participated in several academic clubs and in their Student Body Organization. She transferred to Bicol University College of Education Laboratory School during the sixth grade, and graduated in the top 20 achievers in her batch. Her high school years were spent at the Bicol University College of Education-Integrated Laboratory Schools (High School Department), where she represented her school in Division Level Math Olympiad. In 2004, she was admitted to University of the Philippines Los Baños under the BS Economics curriculum where she later decided to specialize in Development Economics. Throughout her years in college, she was an active member of the Christian Brotherhood International – UPLB Chapter, and served as Academic Affairs Committee Assistant Head in her junior year. ii ACKNOWLEDGEMENT I would like to extend my thanks to the following for their invaluable help to complete this undergraduate thesis: My adviser, Prof. Niño Alejandro Q. Manalo, for your guidance and wisdom and most especially for your unending patience. Thank you for always encouraging me, for never getting tired in sharing me your ideas and for staying with me till the end. God does have reasons why things happen and I truly am proud to be one of your advisees. My reader, Prof. Harvey V. Baldovino, for all your pieces of advice and comments. I never expected to have my batchmate as my reader but I can say that I truly am lucky you came. My panelists: Professors Abrina, Bayani, Carnaje, Mariano and Ramirez for the comments, suggestions and questions. My former advisers: Professors Valientes and Saplaco, for all the knowledge you have shared with me. My Christian Brotherhood International-UPLB Chapter brods and sisses, for your unending back-up and prayers. You had been my family for five years that I lived away from home. From my ates and kuyas to the babies, life here in elbi would never be complete without you. My babies in Siglo08: Chester, Danice, Faye, Jiver, Eunice, Kirby, I’m fortunate to know you guys. Your warm support boosted me. My anak, Lester, thank you for coming to my defense. My ginagabayans, Emman and Joseli, for your cheers and support. My Pareng Budong and Pareng Inggo, time may no longer permit us to be together but our memories will always be with me. My ALAB Batchmates, for always keeping in touch amidst the busy schedule especially for staying with me through the tough times. Len and Iyah, thank you for being my girlfriends and housemates. You taught me a lot of things. My blockmates: X4, for all the help and the humorous stories. Living here would not have been easier without your helping hands. My 2nd batch: EconBatch05, for being kind to me. My final year here with you had been so much fun. My co-advisees: Pam, Errol and Kristel, for the chikahan and updates. My Men’s Dorm roommates: Po-anne, Carly and Miles, for all the help and concern you have shown during our adjustment period. My seatmate Cla, for the company and stories we have shared. My super blockmate and co-advisee: Jennah, for always reminding me of the hectic schedule that we have. I am blessed to have you since Math36. My pseudo-blockmate: Jam, for all your words of wisdom and hope and never ending care for me. My last days here in college will always be remembered. I still wish we had been close since 1st year. My ITC Family, for showing me how productive I can be. Tita Susan, all the stories you shared are worth keeping. Sarah, Honey, Joy and Jen, for the laughter and secrets you entrusted me. My KADIWA Family, for all the lessons in life that you shared and thought me, my unrelenting gratitude. The INC Choristers of the Locale of College: for always guiding me with my duties. My bestfriend, thank you for being my shock absorber when I’m distressed. My housemates: Mon2, Emer, FM, Ai, Mabby, Steph, Ate Stella, Anna, Jen and Neri, for the sleepless nights and our gala days. Thank you for the wonderful times we shared and for bearing with me through my haggard times. My Auntie Edna and Uncle Jhun, for being my guardians and always reminding me of all the blessings I have. My cousin Jhan, for the colorful times you had given me. My sisters: Elline, for always encouraging me though we’re apart; and Elca, from accompanying me in gathering data to doing the statistical tests for this study. I could have never survived the toughest year of my college life without you. You are truly treasures that God gave me. My Mommy and Daddy, for being the parents that every child could ask God for. Thank you for always being supportive amidst my being hardheaded. You had always been my inspirations. You thought me to soar high, thank you for setting me free to fly. Most of all, for believing in me when no one else would. GOD Almighty, for willing the accomplishment of this book and for being the sole miracle behind the victories in my life. I return all the glory to Your Name. Thank You! Though these two words could never contain what my heart is shouting for _ma-an☺ ☺_ iii ABSTRACT SORIANO, MARIEL ANGELA PIEDAD. 2009. Timing and Magnitude of Retail Store Markdowns on Clothing Items in Sta. Rosa City, Laguna. University of the Philippines Los Baños. (Undergraduate Thesis). Thesis Adviser: Prof. Niño Alejandro Q. Manalo This paper investigates how the timing and magnitude of retail store markdowns on clothing items take place in SM City and Target Mall in Sta. Rosa City, Laguna, specifically whether and how holidays and weekends are determinants of markdowns. By observing prices of clothing items in chosen outlets common for the two malls from November 2008 to January 2009, the paper provides results on when and by how much are items marked down. Using two-tailed t-tests, it was found out that prices of clothing items are lower after Christmas rather than during the season while changes on the prices of these items during weekends are insignificant. Results also showed that markdowns are more likely to occur with heterogeneous items rather than generic items. By comparing to a previous study done in Manila, it was found that markdowns occur with lower prices in non-urban cities than in urban cities. iv TABLE OF CONTENTS TITLE PAGE TITLE PAGE i BIOGRAPHICAL SKETCH ii ACKNOWLEDGEMENT iii ABSTRACT iv TABLE OF CONTENTS v LIST OF TABLES vii LIST OF FIGURES viii LIST OF APPENDICES ix 1. INTRODUCTION 1 1.1 Background of the Study 2 1.2 Statement of the Problem 4 1.3 Significance of the Study 7 1.4 Objectives of the Study 8 2. REVIEW OF RELATED LITERATURE 9 2.1 Demand Uncertainty and Sales 11 2.2 Characteristics of the Fashion Item Inventory Problem 12 2.3 Sales on High Volume Shopping Days 17 2.4 Seasonal Cycles and Business Cycles 17 2.5 Sales as Function of the Time on the Shelf 18 2.6 Studies on Markdowns 19 3. METHODOLOGY 21 3.1 Theoretical Framework 21 3.2 Conceptual Framework 23 3.2.1 Retail Pricing 23 v 3.2.2 Holiday Pricing 23 3.2.3 Weekend Sale 24 3.2.4 Peak-Load Hypothesis 24 3.3 Selection of the Study Area 25 3.4 Nature and Sources of Data 26 3.5 Description of the Data Set 28 3.6 Data Analysis 28 4. RESULTS AND DISCUSSION 31 4.1 Description of the Data Collected 31 4.2 Analysis on Holiday Pricing 34 4.3 Analysis on Weekend Sale Pricing 34 4.4 The Peak-Load Hypothesis 35 4.5 Urban vs. Suburban Cities 36 5. SUMMARY AND CONCLUSIONS 37 6. LIMITATIONS AND RECOMMENDATIONS 39 REFERENCES 41 APPENDICES 43 vi LIST OF TABLES TABLE TITLE PAGE Table 1 List of Selected Items and Outlets 27 Mean Prices of Selected Goods During and After Table 2 33 Christmas (in Philippine Peso) Table 3 Mean Prices of Selected Goods on Weekends 33 and Weekdays (in Philippine Pesos) vii LIST OF FIGURES FIGURE TITLE PAGE Figure 1 Market Equilibrium 22 viii LIST OF APPENDICES APPENDIX TITLE PAGE Appendix A Shapiro-Wilk Test for Normality 44 Appendix B Test for Equal Variances 46 Appendix C Analysis between Heterogeneous and Generic Goods 49 (t-test Results) Appendix D Analysis for Heterogeneous Goods (t-test Results) 50 Appendix E Analysis for Generic Goods (t-test Results) 51 Appendix F Analysis for Goods Regardless of Type (t-test Results) 52 Appendix G Analysis on Weekend Pricing (t-test Results) 53 ix