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Price changes.

 Retailers would prefer to sell most goods at the


original retail price.However a decrease or an
increase in prices is sometimes necessary to provide
successful merchandising options.
 1. Markdowns
 2. Markdown cancellations
 3. Additional markups
 4. Markup cancellations
 5. Employee discounts.
Markdowns
It is the lowering or reduction in the original or the
previous retail price on one item or group of
items. For example a sweater that was retailed for
$15 when it was received in the store was reduced
to $8.75 because it became soiled. This price
adjustment is called markdown because the retail
value of the merchandise was lowered.
The difference between selling price and former
price is the amount by which the retail value has
been lowered. Frequently a merchandiser will
want to calculate the markdown % that was
necessary to sell a group of items, and when this
occurs, it is expressed as a % of the net sales
The Purpose of Markdowns

The major aims of reduction are:


 to stimulate the sale of merchandise to
which customers are not responding well.
 To attract customers to stores by offering
‘bargains’.
 To meet competitive prices.
Causes of Markdowns
1. Buying errors
overbuying in Quantities.
buying of wrong sizes.
buying of poor styles, quality, materials
and colors.
poor timing in ordering of goods and
receiving merchandise later than
ordered.
Causes of Markdowns
1. Pricing errors.
setting initial price too high.
not being competitive in price for the
same goods.
deferring markdowns too long.(failure to rep-
rice merchandise correctly- postpone
the markdown to a time when
merchandise will have lost most if not
all of its potential value.At this point the
markdown will be far greater than it
would have been if the buying error
would have been rectified through an
immediate price reduction.
calculated risks of carrying “prestige”
merchandise
Causes of Markdowns
1. Operational errors.
poor stock keeping on the part of
salespeople and failure to maintain
a periodic checkup of slow moving
items.
careless handling resulting soiled and
damaged goods.
failure to display merchandise properly.
uninformed sales people.
Causes of Markdowns
1. Special sales from stock(promotions e.g.
buy 3 for same price of one $1.00)
2. Broken assortments,remnants(cut piece).
3. Necessary price adjustments.
4. Remainder from special sales or
promotions.
Timing of Markdowns
 Merchandise becomes slow selling
 The customer demand is sufficient to sell
the merchandise with minimum price
reduction.
 The customer’s interest in the merchandise
in stock may diminish because of the
appearance of new fashion, product, or a
lower price.
The Amount of Markdown
 Judgment is required in determining the price at
which items can be cleared quickly. The re-
pricing of goods is a major factor in the control
of markdowns. It is difficult to generalize on the
amt of the markdown to be taken because the
right price depends on:
 The reason for reduction
 The nature of the merchandise
 The time of the selling season
 The quantity on hand
 The original markup
Following rules can be
considered in Re-pricing
 The first markdown should be sharp enough to
move a considerable amt of the goods.
 Markdowns should be sufficiently large to be
attractive to customers who rejected the
merchandise at its original price.
 Small markdowns are ineffective.
 Markdowns should not be so large as to invite
suspicion.
Markdown%
 $ Markdown = Previous price – New, Reduced
price

 Markdown % = $ Markdown
------------------- x 100
Net sales
Example 1
 The designer dept received 4 dresses in style
1436 that retailed for $200. All 4 dresses were
reduced to $140 before they were sold. What is
the markdown % on this style?
 Markdown $ = previous price –new reduced price
= 4x($200 -$140)
= 4x60 = $240
Markup% = 240/ 560 x 100
= 42.86%
Example 2
 The net sales for a dept during the month
of June were $28,000 if the markdowns
for the June amounted to $7,280. What was
the markdown %

MD%= 7,280/28,000 x 100


=26%
Example 3
 Determine the net sales if markdowns for
May were 30% of net sales and markdown
amt was $5,400?

Net sales = 5400/30% = $18,000


Problem 1
 Last year markdowns for case goods in a
design shop were 15.5%. If markdowns
amounted to $84,475. Determine the net
sales?
Markdown Cancellations
 Frequently merchandise is reduced for a special
sale , and after the sale is over the remaining
goods are returned to or toward their original
price. This upward price change on merchandise
previously marked down is cancellation of a
markdown.
 Markdown Cancellation is the upward price
adjustment that is offset against a former
markdown.
Net Markdown
 Net markdown = Total markdown –
markdown
cancellation

 Net markdown % = Net markdown


------------------- x 100
Actual sales
Example 1
 For a midnight sale , 24 blazers were reduced from
$80 to $60. During the sale, 14 blazers were sold.
After the remaining 10 blazers were remarked to
the original $80 price. Determine the total
markdown cancellation?
 Total markdown 24 blazers x (80-60) = $480
- markdown cancellation 10 blazers x(80-60) =- $200
------------------------------------------------------------------
net markdown = $280
Example 2
 The buyer for the music shop received 200 CDs priced at $15.95
each. 50 CDs sold at this price. The remaining CDs were marked
down to $11.95 for a special sales event . During the sale, 85 CDs
were sold. After the sale the buyer re-priced the remaining CDs to
$14.95 and sold all of them.find (a) Total Markdown (b) Markdown
cancellation (c) Net markdown amt (d) Net markdown percent

Total markdown(prior to the sale)50 CDs reduced from $15.95 to$11.95


total markdown = 150x ($15.95 - $ 11.95) = $600
Markdown Cancellation( after the sale) 65 CDs were repriced to $14.95
markdown cancellation = 65 x ($11.95 - $14.95)=65 x $3.00 =$195
Net $Markdown = total markdown – markdown cancellation
Example 2
To find net markdown %, we need net sales.
sales prior to sale = 50CDs x $15.95 each = $ 797.50
sales during sales = 85 CDs x $11.95 each = $1015.75
sales after the sale = 65 CDs x $14.95 each = $ 971.75
----------------
Total sales $2785
Net markdown % = net markdown amt / total sales x 100
= $405 / $2785 x 100
= 14.54%
Problem 1
 A buyer reduced 62 shirts from $28 to $20 for a
special three day sale. During the sale , 44 shirts
were sold. After the sale the remaining shirts
were priced at $25 each. Determine the
markdown cancellation.
Problem 2
 A buyer reduced 42 jackets from $85 to
$60 for a one day sale . 40 jackets were
sold during the event.after the sale. The
remaining jackets were marked up to $75.
All the jackets were sold at this price. find
(a) The markdown cancellation and (b) net
dollar markdown?
Additional Markup
 Additional markup is a price revision that
increases selling price above the initial retail
price.
 An additional markup is used to correct an error
made by the buyer or by the marking room
personnel, which resulted in the initial price being
marked too low. Another reason for an additional
markup is to increase retail to coincide with an
increase in cost . An additional markup might be
taken on merchandise already in stock when
reordered merchandise is retailed at a higher
price. Most dept and specialty stores want to
avoid the confusion that occurs when the same
style is marked at different retails.
MarkUP Cancellation
 A markup cancellation is a downward price adjustment
that offsets the original or additional markup. It is used
to adjust the markup on the purchase in accordance with
the original intent and is not to be used to manipulate
stock values. By definition a markup cancellation never
exceeds the amount of additional markup applied to an
item.
 Some stores do not recognize markup cancellations and
classify all downward price changes as markdowns.
Markup cancellations are infrequent, except in highly
promotional dept /stores. Stores that do allow markup
cancellations must be very careful in determining which
downward revisions are markup cancellations. The
cancellation of additional markup should never reduce
the retail price lower than the original price.
Price change procedures
Efficient system of reporting and recording price
changes is important for three reasons: price
adjustments can be reviewed; so that the
calculation of inventory records is accurate; that
shortages may be determined.
 Authorizing Price Change
Buyer or person authorized by buyer.
Merchandising manager.
 Recording of price change
form should indicate the old price, the new
price, the quantity reduced and the reason
why
Price change procedures
 Recording of price change
Recording of form by buyer or person
delegated by buyer.
Requiring signatures on price form of buyer
or person delegated by buyer,merchandise
manager or market of merchandise.
 Changing price on tickets.
 Distributing copies.
One copy to statistical department.
One copy for dept records.
The Relationship of Re pricing to Profit
 Every price change has an impact on gross margin
and net profits. Since the elimination of
adjustments in retailing is impossible, it is
necessary that stores classify each type separately
that they can be analyzed, planned and controlled.
Markdowns the major type of price change reduce
the retail price, causing a decrease in the gross
margin which is further reflected decrease and /or
elimination of profit. In certain merchandise or
classifications, the markdown risk is frequently
anticipated. It is offset by planning a higher initial
markup.
 Initial retail value
of merchandise sold $105,000 = 100%
-cost of goods sold -- 71,000 = 67.6%
---------------------------------------------------
GM(initial markup) $34,000 = 32.4%
- operating expenses --25,000 = 23.8%
--------------------------------------------------------
Net Profit $9,000 = 8.6%
=====================================
The total retail reductions for the period are $5000:
Net sales $100,000 = 100%
-cost of goods sold - 71000 = 71%
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GM(maintained markup)$29,000 = 29%
- operating expenses -- 25,000 = 25%
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