Lecture Management of retail buying – Chapter 12: Pricing and selling

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 rese 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 • RequiredmarkupApercentageusedasa guidelineforallstoremarkupstoensureprofitability MaintainedmarkupApercentageinrelationto netsalesthatreflectsprofitaftertruecostofsales Copyright â 2006 by John Wiley & Sons, Inc All rights rese 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 rese Common Retail Pricing Policies • Keystoning – Adding a flat percentage of profit to  every item • Loss­leaders – 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 • SkimmingAtypeofpriceliningthatskewseach itemspricetowardthehighendforthatitem PricezonesSettingpriceranges&developing productassortmentsineachrange Copyright â 2006 by John Wiley & Sons, Inc All rights rese Setting Markdowns • Mark goods down while active demand still  exists for them (except in high­end 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 rese .. .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 ... Keystoning – Adding a flat percentage of profit to  every item • Loss­leaders – Pricing a few items below profitable  levels to draw people into a store • Price lining – Marking every item in a particular ... markup percentage) x (percent of reduction) minus (cost of reduction) = “Maintained markup” percentage Copyright © 2006 by John Wiley & Sons, Inc All rights rese Common Retail Pricing Policies • Keystoning – Adding a flat percentage of profit to