Winter 2009
What are some successful strategies for pricing inventory?

What are some successful strategies for pricing inventory? When do you need to markdown and by how much?

Debbie Dusenberry of Curious Sofa

Debbie Dusenberry of Curious Sofa

For me, pricing inventory is all about market value: “What will the customer pay for this?” Some items are pre-determined (publications) some are suggested retail (bedding) and all else is up to me. I started my business thinking a 2.2 markup was fine. Now, as I have learned more about retail, I am marking most things up [by a factor of] 2.5 because I simply must, to keep my business above water. I am always on a mission to find anything I can markup three times or more. It is a rare find so I feel no guilt about it.

It all averages out in the end and I am always looking at my profit margin overall at 52% or higher. If something is not moving in my store we try to give it new life by re-displaying it. If I can tell it was simply a bad purchase I will put it on sale within six weeks. I always have a permanent sale section in my store and we usually mark it at 50% off right from the beginning. I do not believe in slow markdowns. Get rid of that wrong merchandise and use that money for something that works.

Ed Butler of The Butler Group

Ed Butler of The Butler Group

I believe most stores do not markup the initial price high enough. Multiply the cost [of the product] by 2.5. If it will not sell for this amount the cost is too high. Shop harder for perceived value or enhance the presentation in the store to create perceived value. As for markdowns, the first step is to evaluate rates of sales every month and be realistic about products that are not selling well. Once identified, make the first markdown at least 20%. Progressive markdowns must be taken. Remember, the cost of poorly-selling merchandise is lost opportunities for the space and the inventory dollars being held. After three months without sales, the profit is lost. After six months, the cost of lost sales is greater than the original cost [of the product] plus margin. This means it is an expense to keep [products that don’t sell].

Gail Markert of Markert Group Consulting

Gail Markert of Markert Group Consulting

Treat pricing as the art and science it is. Avoid using a single strategy for pricing every item. Take into account your store brand identity and location as well as competition and the going price range for the item or category of goods.

Highly-identified branded goods should be priced at the manufacturer’s suggested retail. Retailers rarely get any points for being fifty cents under the market in these goods and it negatively impacts margin. Stores have more pricing latitude on merchandise that is lesser known since it’s difficult for the customer to comparison shop. Ask yourself or your staff what they would expect to pay for the item. Remember the customer doesn’t know what you paid for the item so avoid using your cost as the sole driver. If earrings or a candlestick or a figurine can sell for more, price it for more.

Taking a tentative markdown only prolongs the process and can cost you more in the long run. Customers can tire of seeing the same clearance goods hanging around for long periods. Begin with at least 25% off; 30% is even better. To clear the merchandise efficiently, expect to reduce the merchandise further at two to four week intervals at 50%, then 75% off.

Rosanne Brown of Venice Stationers

Rosanne Brown of Venice Stationers
Venice, FL

Keystone (where merchandise is marked up to double the wholesale price) is our starting point for pricing merchandise. To that we consider freight costs, the pricing of similar merchandise in our store, a competitors’ pricing of like products and finally, our perceived value of the item. We are a mid-priced store and our pricing strategy must take into consideration what our customers expect.  Something that might sell at a 3x or more markup in another store, may not sell at that price in our store. This is even more important during these challenging economic times.

If you spend most days in your store, it will become obvious to you what is not selling. Sometimes it is an entire line or that one design within an assortment. Because our business is seasonal, it is difficult to set a time limit for how long to keep slow sellers. Price may be one of the reasons a product is not selling. When we think that could be the case, we might re-price and or move the product to other locations in the store, giving it another chance before we consider a markdown. But once we make the decision to put an item on sale, we want to move it out fast, so we begin with a 50% off discount. If it still is not moving out the front door, we will consider another markdown before sending it out the back door.

Lauren Heamon of Fox Premier Sales

Lauren Heamon of Fox Premier Sales

First, make sure you buy right. Take advantage of manufacturers’ specials whether it’s free freight or special discounts. The goal is to sell the product. Add on a minimum markup of 2.2x to 2.5x. Straight keystone markups just won’t pay the bills. You need to cover freight and give yourself a little cushion to take a future markdown if necessary and still make some money. When pricing any item at retail, make sure the price is still attractive and offers value and is not priced over the competition. Stay educated; ask your rep what the product usually retails for.

Keeping your store fresh and new is important to increasing the frequency of visits from your customers. If you bring in new product, evaluate [sales] activity at least monthly. Sometimes we can kill a great item by [pricing it wrong] or putting it in a location that people are missing. So if a product is not moving, double check the retail price and move it to a new location. After 90 days, if you have not moved at least 50% of the product, mark it down. The sooner you can free up dollars to bring in new, fresh merchandise the sooner you will have an opportunity to make more money. Don’t get too attached to a cute product, either it sells or it doesn’t. If it doesn’t, clear it out and look for something that will.

Social Connections

Upcoming Trade Shows

May 27 – 29

School & Office Expo

Jun 8 – 11

Atlanta Apparel Market

Atlanta, GA USA
Jun 12 – 15

ASTRA Marketplace & Academy

Minneapolis, MN USA
Jun 14 – 17

Dallas Apparel & Accessories Market

Dallas, TX USA
Jun 22 – 28

Dallas Total Home & Gift Market

Dallas, TX USA
Gift Shop Plus Spring 2022 issue cover image
Get one year of Gift Shop Plus in both print and digital editions for just $16.

Interested in reading the print edition of Gift Shop Plus?

Subscribe Today »

website development by deyo designs