In this chapter, you will learn about: Profit margin controls, calculating initial markup & required markup, determining profitability of a department or store, pricing individual items, price line structures, markdowns & closeouts, calculating profits, a retail buyer’s role in the selling process. | Ch. 12: Pricing & Selling Profit margin controls Calculating initial markup & required markup Determining profitability of a department or store Pricing individual items Price line structures Markdowns & closeouts Calculating profits A retail buyer’s role in the selling process Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved This is the topic overview found at the beginning of Chapter 12. Retail Markup Terminology Initial markup – The difference between the invoice cost of an item & the first sales price marked on it by the store Cumulative markup – The total of retail prices of all items in a department, minus the total costs of the same items Required markup – A percentage used as a guideline for all store markups to ensure profitability Maintained markup – A percentage in relation to net sales that reflects profit after true cost of sales Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved A number of different types of markups are referred to when calculating profitability of a single item or an entire store. These are the terms most often used. Formulas for Markups Cumulative markup of inventory Markup Total retail value of inventory = percentage Planned expenses + profit (not Planned including discounts) + reductions = markup Planned sales + reductions percentage Original retail price (always 100%) minus (initial markup percentage) x (percent of reduction) minus (cost of reduction) = “Maintained markup” percentage Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Any retailer should have a target markup, expressed as a percentage. The first two formulas help you determine this target markup. The formula at the bottom of the slide is used to analyze sales results over a period of time, to see if the department is “maintaining” a sufficient markup. It can be used for individual items, entire product lines, or an entire store department’s sales. Common Retail Pricing Policies Keystoning – Adding a flat percentage of profit to every item Loss-leaders – Pricing a few items below profitable levels to draw people into a store Price lining – Marking every item in a particular cost range at the same retail price Skimming – A type of price lining that skews each item’s price toward the high end for that item Price zones – Setting price ranges & developing product assortments in each range Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved There is a catchphrase for almost every retail pricing policy. Note the difference between price lines and price zones, explained on pages 241-243. Setting Markdowns Mark goods down while active demand still exists for them (except in high-end stores) Experiment with timing of markdowns & document the results First round of markdowns should clear most (but not all) of the sale merchandise out Markdown amounts should vary with type of goods Experiment with “stepping out” of price line patterns to see what is most effective Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved There are no hard-and-fast rules about how much or how often to mark items down in price, but these are a few of the most common strategies in retail stores.
