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Thursday, February 23, 2012

The Art of Understanding Retail Mark Up

By Suzanne O'Connor

Retail markup covers the costs of doing business. But to understand what the savings are when an item is discounted, you have to understand markup and how it effects in store sales.

Retailer are allowed and need to make a profit to stay in business. They are offering a valuable service bringing goods to market. So don’t get angry at them, but knowing how it works will help you know when there are real savings.

So lets say a retailer has a 100% markup… they are doubling the price. If the per unit wholesale price is $50, 100% mark up is $100. A 300% markup is wholesale price of $50 x 3 or $150.
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But its’ not always that simple. Retail mark up changes from industry to industry and product to product. Smaller retailers and boutiques that do not buy in the same volume and generally have smaller mark up margins of 100%-150%. Grocery, appliance and electronic retailers can have a markup margins as low as 15%-50% or as high as 200% depending upon product and what they think the market will bear. Even Walmart, Big Lots all have good sized mark up margins of around 300% but can be as high as 600%. 50% off MSRP can be a wholesale price or up to a markup of 300%, depending on the per unit wholesale price.

Big Department stores are in business to make money. They use their substantial markups to use assales ploys and mark up tactics to get you to buy an item at the price they want to sell it for where their profit margins are still intact. For example, they purchase 1000’s of items at a wholesale unit price of $27 and mark the item at $100… over a 300% markup. But they actually plan on selling it for a lower price that still meets their profit margins. So they first offer it at 20% off… maybe a few people buy it at that price. But then they start the variety of different offers to get the real price they want for it…. say $50 or so. Here are some of the fake sales tactics you may have seen before.

- B1G1 Free (pay $100 for 2, each $50

- 50% off (pay $50 for one)

- 30% off, plus take an extra 30% off (pay $49)

- 40% off, plus take an extra 15% off (pay $51)

- $40 off, plus take an extra 15% off (pay $51)

- $25 off, plus take an extra 33% off (pay $50.25)

- 25% off, plus take an extra 20% off, plus get $10 for every $50 (pay $60, get $10, net ~$50)

- B2G1 Free, plus get $10 for every $40 (pay $200 for 3, get $50, net ~$50 for one)

I’m sure you’ve seen many variations of the above. I like the buy one, get the second at 50% off. You see the 50% off, but it’s really only a 25% savings. Personally, I don’t want to work that hard at math when I shop.

As a savvy shopper, you make the decision of what you’re willing pay for an item. Knowledge is key to understanding the actual value. One of the best ways to get the best value is to buy direct from the manufacturer when it is possible to do so,,, and by pass retail markup.

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