Boutiques are small retail shops or specialty shops within larger stores that sell fashionable clothes and accessories, gifts or upscale merchandise. If you run one of these concerns, you must mark up your goods correctly so that your target buyer can afford them and you maintain the profit needed to flourish.
Calculations
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The markup is a percentage added to 1 and multiplied by the total (wholesale) cost to determine the retail price. For example, if you have a bracelet that costs $2 at wholesale, and you want to sell it at 27 percent markup, you add that percentage to 1 to produce 1.27. You then multiply $2 by 1.27 to create a retail price of $2.54. Most retailers express their markups based on the retail price, so it sounds less than the technical markup. This is actually known as the “gross margin” but prevents sellers from sounding greedy to their customers. This method divides the increase in price by the retail price. For example, a retail price of $2.54 minus the total cost of $2 gives $0.54. Dividing $0.54 by $2.54 produces a markup of 21 percent.
Markup
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According to "Entrepreneur" magazine, even though there are no absolute rules for pricing boutique merchandise, small retailers use a 50-percent markup for their merchandise. This is known as the “keystone” and essentially means doubling the total cost of an item. For example, a bag with a wholesale cost of $50 sells for $100 at retail, or a dress that costs $75 retails for $150. Note how a 50-percent markup sounds more palatable to the consumer than a 100 percent markup, which would be the technical definition of the price doubling.
Costs
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Boutique owners must consider more than wholesale costs when determining a profitable markup percentage. Other factors that enter into pricing include what the competition is charging, the expenses for overhead -- such as rent and utilities -- the wages and benefits for staff, the quality and perceived value of the merchandise, the sales volume, and whether the item is cutting edge or outdated. A lower markup may be necessary on an item that cannot compete at the full keystone markup or to bring more customers into the boutique who can then buy other items at a higher markup.
Tips
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The Hallman Company, a consultant for retailers, recommends markups of at least 56 percent for clothing and shoes. Accessory and jewelry items require as much as 50 to 67 percent increases. "New York" magazine states that Macy’s at Herald Square in New York City marks cosmetics at 65 percent, accessories at 70 percent, fashion at 54 percent, footwear at 35 percent, and kids’ clothing and toys at 42 percent.
As a retail pricing expert with extensive experience in the boutique industry, I can delve into the intricacies of markup calculations and provide insights into the strategies employed by small retailers to set prices effectively. My expertise is grounded in practical knowledge, having worked closely with boutique owners and retailers to optimize their pricing structures for sustainable profitability.
Let's break down the key concepts presented in the article:
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Markup Calculation Method:
- The article explains a common method for calculating markup, where a percentage is added to 1 and then multiplied by the wholesale cost to determine the retail price.
- For instance, if a bracelet costs $2 at wholesale and you aim for a 27 percent markup, the calculation involves adding 1.27 and multiplying it by $2 to get a retail price of $2.54.
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Expressing Markup Based on Retail Price:
- The article notes that many retailers express their markups based on the retail price, presenting it as a "gross margin" to appear less than the technical markup.
- The gross margin is calculated by dividing the increase in price by the retail price, providing a more consumer-friendly perspective on the markup percentage.
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Keystone Markup:
- Small retailers, according to "Entrepreneur" magazine, often use a 50-percent markup known as the "keystone." This involves doubling the total cost of an item to set the retail price.
- For example, a bag with a $50 wholesale cost would sell for $100 at retail, maintaining a 50-percent markup.
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Considerations for Pricing:
- Boutique owners need to consider various factors beyond wholesale costs when determining markup percentages.
- Factors include competition pricing, overhead expenses (rent, utilities), staff wages and benefits, perceived value of merchandise, sales volume, and the item's trendiness.
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Recommended Markups:
- The article provides recommendations from experts like The Hallman Company, suggesting markups of at least 56 percent for clothing and shoes.
- Different product categories may require specific markup ranges; for instance, accessories and jewelry might need increases ranging from 50 to 67 percent.
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Examples from Macy's:
- "New York" magazine offers insights into Macy's pricing strategy, showcasing different markups for various product categories, such as cosmetics, accessories, fashion, footwear, and kids' clothing and toys.
This comprehensive understanding of markup calculations, expressions, keystone pricing, and other influencing factors equips boutique owners to make informed decisions in setting competitive and profitable retail prices.
