Retail Math: The Splurge vs. The Save, Part I

In honor of a true style icon, Lilly Pulitzer- R.I.P. Photo by Slim Aarons.

“When to splurge and when to save?” is most certainly one of the biggest questions on a customer’s mind, given the variety of options available. As a sales associate at a specialty boutique, retail math has become apart of my professional skills set. But as a customer, I have become increasingly more aware of an item’s respective wholesale (the price at which a store purchases a garment) and mark-up values.

“Fast-Fashion” Retailers such as Forever 21 and H&M have not only changed the rate at which trends are introduced to the market but also the standard price point of a garment. Diffusion lines such as MICHAEL Michael Kors and Simply Vera by Vera Wang are geared toward the average American costumer, a “luxury for the masses” approach. Mass-market brands such as J.Crew and Club Monaco have also followed suit, poising themselves to be perceived as “luxury” outfitters at a less-than premium price point. In today’s market, it can be difficult for a customer to understand the true value of a garment. Here’s the basic, retail mark-up formal:

Cost of Goods + Mark-Up = Retail Price

To find the Mark-Up Margin Percentage, the formula is as follows:

Mark-Up Value (Amount in $) / Retail Price = Mark-Up Margin Percentage X 100

To better help you imagine how retail math works, I’ll give an example:

A wholesales representative sells a pair of earrings, typically as a part of a fixed number of units, to a store at the value of $2.50 per unit. The store chooses to sell the item at a price point of $45.

$45 – $2.50 = $42.50 –> $42.50/$45.00 = 0.9444 –> 0.944 X 100 = 94.4 %

The earrings were marked-up at the rate of 94.4%- which is steep but allows the store to profit.The standard mark-up rate is typically half of the item’s retail value but it is important to be mindful that most stores will try to sell it at a greater cost, so even a garment’s sale price is not worth the money spent!

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