the truth about markups & markdowns

93
The Truth About Markups & Markdowns

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Post on 09-May-2015

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MSA is pleased to bring you this informative webinar by industry expert Paul Erickson, as he demonstrates the benefits of different competitive pricing strategies you can begin implementing in your store immediately.

TRANSCRIPT

Page 1: The Truth About Markups & Markdowns

The Truth About Markups & Markdowns

Page 2: The Truth About Markups & Markdowns

Paul EricksonSenior Vice President

[email protected]

Page 3: The Truth About Markups & Markdowns

initial markup (IMU)

Page 4: The Truth About Markups & Markdowns

difference between markup & margin

markup• initial markup and

maintain markup• retail aspect• from buyer’s perspective

margin• initial margin and

gross margin• accounting aspect• from business owner’s

perspective

Page 5: The Truth About Markups & Markdowns

retail method of calculation

Page 6: The Truth About Markups & Markdowns

retail method of calculation

original selling price - cost / original selling price

• Example: $100 - $40 / $100 = 60%

Page 7: The Truth About Markups & Markdowns

keysto

ne

pricin

g?

Page 8: The Truth About Markups & Markdowns

Zizzybaloobah/Fickr

Page 9: The Truth About Markups & Markdowns

“…I multiple the cost by

2.2…”

“…that’s what I always price

it at…”

“…I double the cost and then add

a $1 or $2…”

Page 10: The Truth About Markups & Markdowns

three key elements

Page 11: The Truth About Markups & Markdowns

markdownsoperating expenses

desired net profit

three key elements

Page 12: The Truth About Markups & Markdowns

markdownsoperating expenses

desired net profit

three key elements

Page 13: The Truth About Markups & Markdowns

markdownsoperating expenses

desired net profit

three key elements

Page 14: The Truth About Markups & Markdowns

IMU formula

Page 15: The Truth About Markups & Markdowns

IMU = (markdown% +

operating expense % + desired net profit %) / 100% + markdown%

Page 16: The Truth About Markups & Markdowns

.06 + .40 + .20

1.0 + .20

= .55

markdowns =20%

operating expenses =

40%

desired net profit =

6%

Page 17: The Truth About Markups & Markdowns

IMU 52.5% 55%

MDS 20% 20%

MMU 43% = $430K 46% = $460K

EXP 40% = $400K 40% = $400K

NET 3% = $ 30K 6% = $ 60K

annual sales $1,000,000

Page 18: The Truth About Markups & Markdowns

52.5% 55% $9.00 cost $9.00 cost

$19.00 retail $19.99 retail

pricing for profit

Page 19: The Truth About Markups & Markdowns

psychology of pricing

Page 20: The Truth About Markups & Markdowns
Page 21: The Truth About Markups & Markdowns

competitive pricing

Page 22: The Truth About Markups & Markdowns

competitive pricing

multiple pricing

discountpricing

loss leaders

know yourcompetition

customerservice

Page 23: The Truth About Markups & Markdowns

competitive pricing

multiple pricing

discountpricing

loss leaders

know yourcompetition

customerservice

Page 24: The Truth About Markups & Markdowns

competitive pricing

multiple pricing

discountpricing

loss leaders

know yourcompetition

customerservice

Page 25: The Truth About Markups & Markdowns

competitive pricing

multiple pricing

discountpricing

loss leaders

know yourcompetition

customerservice

Page 26: The Truth About Markups & Markdowns

competitive pricing

know yourcompetition

customerservice

multiple pricing

discountpricing

loss leaders

Page 27: The Truth About Markups & Markdowns
Page 28: The Truth About Markups & Markdowns

steering clear of cost-base pricing

Page 29: The Truth About Markups & Markdowns

steering clear of cost-base pricing

determine price when

writing order

decide on price before

knowingcost

Page 30: The Truth About Markups & Markdowns

determine price when

writing order

decide on price before

knowingcost

steering clear of cost-base pricing

Page 31: The Truth About Markups & Markdowns

then makedecisionto buy

=determine price when

writing order

decide on price before

knowingcost

steering clear of cost-base pricing

Page 32: The Truth About Markups & Markdowns
Page 33: The Truth About Markups & Markdowns

initial markup review

Page 34: The Truth About Markups & Markdowns

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

Page 35: The Truth About Markups & Markdowns

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

Page 36: The Truth About Markups & Markdowns

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

Page 37: The Truth About Markups & Markdowns

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

Page 38: The Truth About Markups & Markdowns

initial markup review

rightproductprice?

determine each product

categoryseparately

steer clear of cost-base

pricing

use psychologicalpricing when

possible

key expensesgo up, so should IMU

Page 39: The Truth About Markups & Markdowns

markdowns

Page 40: The Truth About Markups & Markdowns
Page 41: The Truth About Markups & Markdowns

Advertising 3.3%

Occupancy cost 8.0%

Payroll 19.5%

Markdowns 23.6%

Expense Percents

Page 42: The Truth About Markups & Markdowns

Retailers are losing over $200 billion a year due to markdowns.

--United States Census Bureau & National Retail Federation

Page 43: The Truth About Markups & Markdowns

decision making

Page 44: The Truth About Markups & Markdowns

best laid plans of mice and men

Page 45: The Truth About Markups & Markdowns
Page 46: The Truth About Markups & Markdowns
Page 47: The Truth About Markups & Markdowns
Page 48: The Truth About Markups & Markdowns

the calculation

Page 49: The Truth About Markups & Markdowns

markdown percent calculation

total retail markdown $net sales

(sales after markdowns)

= 25% $ 20$ 80

Example:

Page 50: The Truth About Markups & Markdowns

the good and the bad

Page 51: The Truth About Markups & Markdowns

the good

keeps inventory

fresh

assures good cash

flow

cost of doing

business

Page 52: The Truth About Markups & Markdowns

the good

keeps inventory

fresh

assures good cash

flow

cost of doing

business

Page 53: The Truth About Markups & Markdowns

the good

keeps inventory

fresh

assures good cash

flow

cost of doing

business

Page 54: The Truth About Markups & Markdowns

the bad

higher than other expenses on the income

statement

raises the cost of goods sold and result in a net

loss

Page 55: The Truth About Markups & Markdowns

the bad

higher than other expenses on the income

statement

raises the cost of goods sold and result in a net

loss

Page 56: The Truth About Markups & Markdowns
Page 57: The Truth About Markups & Markdowns

four factors

Page 58: The Truth About Markups & Markdowns

four factors

current on

hand

current rate

of sale

desired stock turn

season’s end

Page 59: The Truth About Markups & Markdowns

four factors

current on

hand

current rate

of sale

desired stock turn

season’s end

Page 60: The Truth About Markups & Markdowns

four factors

current on

hand

current rate

of sale

desired stock turn

season’s end

Page 61: The Truth About Markups & Markdowns

four factors

current on

hand

current rate

of sale

desired stock turn

season’s end

Page 62: The Truth About Markups & Markdowns

seasonal system

Page 63: The Truth About Markups & Markdowns

seasonal system

give time for

acceptance

season’s time line

season ending

deadline

Page 64: The Truth About Markups & Markdowns

seasonal system

give time for

acceptance

season’s time line

season ending

deadline

Page 65: The Truth About Markups & Markdowns

seasonal system

give time for

acceptance

season’s time line

season ending

deadline

Page 66: The Truth About Markups & Markdowns
Page 67: The Truth About Markups & Markdowns

root causes of excessive markdowns

Page 68: The Truth About Markups & Markdowns

root causes

poorbuying

too large

assortments

duplication overbuying

Page 69: The Truth About Markups & Markdowns

root causes

poorbuying

too large

assortments

duplication overbuying

Page 70: The Truth About Markups & Markdowns

1. 70% of your sales come from inventory less than 3 months old

2. Recognize short shelf life

3. Recognize slow sellers in season

Overbuying

Page 71: The Truth About Markups & Markdowns

Do not advertise % or specific $ offat this time!

Page 72: The Truth About Markups & Markdowns

“Just Reduced”

Page 73: The Truth About Markups & Markdowns

psychological pricing

Page 74: The Truth About Markups & Markdowns
Page 75: The Truth About Markups & Markdowns

math of psychological pricing

original price: $38.00

25% off

original price: $98.00

20% off

psychological pricing

$29.99

psychological pricing

$79.99

= $28.50

= 21% off

= $78.00

= 18% off

Page 76: The Truth About Markups & Markdowns

same message?

25% off plus “take an additional 15% off” = 40% off

=36.25%

50% off plus “take an additional 20% off” = 70% off

=60%

Page 77: The Truth About Markups & Markdowns

markdown rules

Page 78: The Truth About Markups & Markdowns

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

Page 79: The Truth About Markups & Markdowns

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

Page 80: The Truth About Markups & Markdowns

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

Page 81: The Truth About Markups & Markdowns

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

Page 82: The Truth About Markups & Markdowns

markdown rules

planplanplan

use a budget…don’t be

under

price points not

percentages

learn from every

markdown

pay your tuition

Page 83: The Truth About Markups & Markdowns

markdown truths

Page 84: The Truth About Markups & Markdowns

markdown truth #1

• Always explain to your customer why the items are marked down

Page 85: The Truth About Markups & Markdowns

markdown truth #2

• Overbuying is the number one cause of excessive markdowns

Page 86: The Truth About Markups & Markdowns

markdown truth #3

• Your first markdown is the cheapest!

Page 87: The Truth About Markups & Markdowns

markdown truth #4

• The price you paid has nothing to do with the markdown price

Page 88: The Truth About Markups & Markdowns

markdown truth #5

• Learn from every markdown

Page 89: The Truth About Markups & Markdowns

markdown truth #6

• Always keep your markdown items at the back of the store!

Page 90: The Truth About Markups & Markdowns

markdown truth #7

• Nurture your customers who do not shop you on price alone

Page 91: The Truth About Markups & Markdowns

• commit to lean inventories• maintain liquidity• avoid the last buy• use an open-to-buy plan

and follow it

final word on markdowns

Page 92: The Truth About Markups & Markdowns
Page 93: The Truth About Markups & Markdowns

Thank you!Paul Ericksonwww.rmsa.com

[email protected]

[email protected]