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The Ups and Downs of Costing for Retailers I (along with James) teach a class at the Fashion Institute of Technology (F.I.T) in New York that helps new children's wear manufacturers understand the kids' market. One issue we address is costing, or the fine art of pricing your product for wholesale distribution. Setting a price on retail inventory is just as important. For a buyer to price their items so they sell and the store owner makes a profit, they must be aware of standard markups. And, what about markdowns? How far into the season do you wait before reductions are taken and at what percentage? To help answer some of your pricing issues, I turned to two pros in the kids' retail industry: Robyn Iannone, a CPA and retail consultant with a specialty in inventory and financial issues as they relate to boutiques. Iannone is a former children's boutique owner from Savannah, Georgia. Unlike many new store owners who may have retail sales experience but no business training, Iannone segued from the financial world where she was a CPA overseeing service managers for a large dot.com corporation, to retail. Roberta Orell is a New York-based retail consultant with years of buying experience. She specializes in new children's wear retail startups.
TINA BARRY (to Iannone): Tell me about your store. ROBYN IANNONE: My store was called Robyn's Nest. I opened it in 2002 in Savannah, Georgia, and sold it in 2004. I found three kids and 14-hour work days too much. TB: What kind of merchandise did you carry? RI: Well, when I first looked around at other stores in my area, I noticed beautiful goods with really high price points. When it came to middle range prices, like $50 for a dress, there wasn't a lot to choose from. I decided to open a shop where someone could find really cute things for $50 or less. TB: Did you go to your first trade shows with an OTB (open to buy) plan in hand? RI: Not exactly an OTB. I had a rough idea of what my expenses would be - rent, salaries, etc. - so I knew I'd have to order enough goods so when they sold, my costs would be covered. TB: Did you know what your markup would be before you ordered? RI: You have to. The industry standard is to keystone, or double the cost for a garment [a $10 item keystoned will retail for $20]. The bottom line for me was, 'Can I sell this item when I mark it up?' If I couldn't double the price, or maybe do a 2.1 markup and feel confident that the item would sell, I didn't write an order. TB: Roberta, do your clients keystone, or is there a higher markup that you recommend? ROBERTA ORELL: I have clients all over the country. They all keystone then add $2 on most items to cover incidentals like freight. TB: Do they use that markup for all their merchandise or just apparel? RO: With jewelry they can sometimes triple the price. TB: Did you markup specialty items that high, Robyn? RI: Yes. With an item like a specialty bracelet, I could sometimes triple the price. Certain jewelry is perceived as a higher priced gift, so the markup could be greater. That's true too, for custom designed furniture. TB: So you have your first orders of the season hanging in the shop. When did you take markdowns and for how much? RI: For fall goods that are delivered in August or early September, I'd start taking markdowns of about 25 to 30 percent in October. Real dogs - and you know pretty quickly what's moving and what's not - could be marked down as early as late September. By December, I'd have a pre-Christmas sale with clothing reduced 40 to 50 percent, I'd hold seasonal items like a sweater with a Christmas theme or special gift pieces until the end of the season before reducing them. TB: Roberta, what advice do you give your retailers about markdowns? RO: My feeling is the faster you get rid of inventory that isn't selling, the faster you can purchase new merchandise that moves, so I tell retailers not to hold onto goods that haven't moved hoping that they'll sell at the original price, or with a slight discount, at the end of the season - it just doesn't happen. Buyers should start marking their inventory down in four to six weeks at approximately 20 to 25 percent off. If it's fall merchandise, everything should be marked down by at least 25 to 30 percent for a Christmas sale in December. By January, the goods are a history lesson; just unload them with a 65 to 70 percent sale. -Tina Barry
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