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PRICING STRATEGIES

Recently I was asked the question “Is it better to have a high markup and then markdown merchandise more or is it better to go with a more value pricing structure with low markdowns?”.  The answer is that either will work as long as you keep your eye on the Gross Margin goal.  I call Gross Margin the ‘bottom line’ of merchandising.  It is similar to the Net Profit line on you Income Statement, except that it pertains only to merchandising.

You can achieve your Gross Margin goal in a number of ways.  For example, if your goal for Gross Margin is 52% then you can have an Initial Markup of 55% with 7% markdowns, 62% Initial Markup with 26% markdowns or 70% Initial Markup with 60% markdowns.

The choice is yours.  It depends on how you want your customers to view your store.  Do you want your store viewed as a fine retail establishment that has two big end of season clearance sales or do you want your store viewed as a place to get “cheap” merchandise, where everything is always on sale?  In many instances, you have already made this choice and your customers expect you to merchandise your store as you have always done.  It would be easier to change from the low markup, low markdown structure than to try to move from a high markup, high markdown structure.


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