Pricing merchandise is an art whose goal is not to achieve the highest possible markup but to maximize the store’s gross profit (and bottom line). If the initial markup is too high sales volume will decline. If the initial markup is too low the store will not generate enough gross profit to cover its operating expenses. The IMU% goal for each store will be different due to local competition, the type of merchandise carried and the company’s expense structure. However, no matter what the IMU% currently is for your particular store, there are ways that it can be improved.
You can take a higher markup where competition permits to offset the lower markup where competition does not permit. In order to do this you must search the market for unique merchandise that competitors do not carry. When going to market, spend an extra day or half day walking the halls looking for new vendors. If you are carrying all the same merchandise as your competitors you’ll have to have comparable prices. However, if you have desireable merchandise that customers can not get anywhere else locally you can get a higher markup.
Keep yourself “Open-To-Buy” to be able to take advantage of in-season buys. If you are not already using an Open-To-Buy for merchandise budgeting you need to start immediately. If you have an Open-To-Buy but are not using it effectively then that situation needs to be turned around. The goal of the Open-To-Buy is to help the buyer plan the buying and receipt of merchandise so there is a continual flow of new goods coming into the store. If all the open-to-buy dollars are being committed up front at the beginning of the season there will be nothing left for in-season buys of off-price merchandise.
When at market ask your vendors what specials they have available. Then be prepared to take advantage of them by being sure to have Open-To-Buy available. It’s not a good deal if you overbuy to take advantage of it since overbuying just leads to higher markdowns and lower gross profit.
Every classification within the store may have a different IMU%. Also, within each classification there may be a number of different markups, depending on the merchandise and the vendor. By increasing the Initial Markup on special purchases of merchandise or on unique merchandise as the opportunity arises we can increase the overall IMU of that particular class and, all else being equal, we can increase the Gross Profit (and the bottom line). For example, look at the table below showing two different scenarios for a single classification, both of which have purchased $10,000 at retail. Sales and markdown % are the same for both. The only difference is that in scenario B, of the total purchases at retail, $2,000 was brought in at a 62.5% initial markup rather than 50%. You can easily see how this has increased the Gross Profit % and dollars.
Increasing Initial Markup is not easy, but it can be done and is well worth the effort.