What is the big deal about margins? Why do I continue to rant and rave about them? Oh, solvency, profits and the future of your store are a few small reasons. Many years ago the keystone markup was a dream…but now doubling the wholesale price is simply not enough. All of our costs have risen and many of us are reporting slower sales, so we have to be even more vigilant about profitability in order to survive.
This is not a question of greed or price gouging- it is a simple economic fact that if your store is not profitable you will not stay in business. Or maybe you will keep the store open, which is fine if you like working very hard for a big pile of deductions and a bad bottom line. Most of us hate really hate not making any money, which is what happens if
the bottom line is weak.
There is no standard mark up rate that you can apply to everything in the store. Some lines are pre-priced or highly visible, so they need to stay at or just above keystone. Everyone carries lines like that, and makes money with them, but we also need to buy them as wisely as we can. For the low margin lines, always search for deals like volume pricing, free freight, dating or special buys. These incentives make a huge difference.
We aim for a 2.2 to 2.5 mark up on our gift lines, but certainly cannot always achieve it. Greeting cards and books are generally pre-priced, of course, but we are careful to take advantage of every special the vendors offer. Book publishers often give a better discount, free freight and dating on orders of 50-100 titles. This helps improve the margin, and the quick sales as well as low quantities per title make it a profitable category for us.
Another way to improve sales as well as margins is to remove items from the packaging- especially poly bags with header cards. If the wrapping does not enhance the product, remove it.
Be a little leery of pre-pack assortments and fixtures. While the companies usually make good choices, if there is a significant amount of merchandise that does not sell in the opening order, you will never make it up with the dollars from the good sellers and the overall margin in the line will stink. Always check the items in an assortment and be sure they work for your specific customer base.
While many fixtures enhance the product, some are tacky and actually make the merchandise look cheaper than it would appear if you merchandised it yourself. Presentation is the key to good sales…and good margins. The very same product in a fancier store will appear more valuable than it does in low-end surroundings.
When we review our lower-margin lines, we look at how fast they sell, whether they serve a special purpose for our customers that brings them into the store, like greeting cards or consumables, and how much inventory we must carry to be in the business with that line. If the line moves well, we don’t have to carry tons of it and the company is good to work with, we are thrilled to carry it and consider it profitable.
A big part of the analysis is the aggravation factor. If a line has poor customer service, if they fulfill poorly, ship a million backorders or make mistakes in the picking process and we have to make claims, follow up with their customer service or spend a lot of time sorting out the invoices, we often decide to drop the line unless it such a terrific seller that we just can’t do it. However, I have a good memory and when the when the sales slow down that line is gone in a red hot hurry. While customer service is hard to quantify on a spread sheet, it is easy to see the dollars disappearing in salary when a line is high maintenance.
Watch your pricing and freight costs! At the beginning of the year, many companies raise their prices and this year there have been more increases than ever. As you place reorders, check the pricing and adjust your priced of the in-stock product as well as the new goods. It is a good idea to review the prices of lines you are not reordering as well, if you have the time. Let’s face it- you probably don’t have the time, but the idea is good.
Hello, Mary Liz,
I always enjoy your columns and learn from them, so thank you!
You mention finding lines with better than keystone markup. Does that mean items that aren’t pre-priced? Most products have MSRPs, even if prices aren’t printed on them. Many of those items can be purchased retail online at keystone or better, which makes me leery of raising the price more than a dollar or two. I’ve met very few vendors who suggest or encourage greater than keystone margins. I notice that many other stores I visit are keystoning products or only adding a dollar or two. What do you consider to be optimal margins?
I do have some lines in one particular category (non-gift) that I can mark up considerably, but in gifts I don’t know what to look for. Any advice?
Thank you, and Happy New Year.
Jan
By the way, that dollar or two Jan mentioned is essential. While a little bit here and there doesn’t seem to mean much, at the end of the year it adds up nicely. Never discount the accumulation of those quarters, dimes and dollars.
The merchandise that helps boost the bottom line is very important to the mix in any store and there are lots of them if you keep looking. Certain categories, like jewelry, private label product and home accents, have great potential.
So the big question is how do you find them? Where are these terrific bargains that will sell like crazy and send the kids to college? Start digging.
First, start with the lines you already carry. Are there any bargains to be had? With the mania for new product, manufacturers are bringing out new product faster than they can sell the old and we have found lots of terrific products from past seasons at great prices.
Many manufacturers are offering great deals this season to move their excess inventory. Ask them what they have. I have seen discounts as high as 20% for a larger order on current, first line product, from companies that are overstocked. If you have the cash, this is a terrific season to get some good buys on current merchandise from vendors you know.
As you shop the shows, go to new booths and dig around. As well as finding new items, which thrills the shoppers, you may find a few treasures at great prices. Don’t just shop in the pretty showrooms…wander through the importers and odd collections.
My first boss, Judy Patterson, taught me to look at an item and think about what I could get for it before I looked at the cost. Often this tip has resulted in a higher price point.
If you have a line with great margins, please drop me an email at (JavaScript must be enabled to view this email address). I’ll share the list in a column soon.
Strong margins are essential to your business. Keep them in mind as you buy and reorder.
You need the money!
A little note to manufacturers
Are you helping your customers stay in business and pay their bills? Take a look at the products you offer and think about the selling prices you suggest. Retailers cannot live on keystone alone, and the lines that offer merchandise with a suggested retail that gives them a better margin will be very much appreciated.Every smart buyer looks not just for deals, but for lines that help us stay in business, maintain a profitable bottom line and pay our bills on time.
Mary Liz Curtin
Mary Liz Curtin learned the art of pinching pennies from her husband and partner. Their store, Leon & Lulu, is firmly in the black, largely due to their careful shopping and general cheapness. See the store at www.leonandlulu.com