Retail initial margin calculation

MarkupOne question I am repeatedly asked by retailers is how to increase maintained margin. Several answers readily come to mind, the most obvious being to avoid overbuying, and therefore, reduce the margin eroding markdowns that accompany such a practice. Another way of increasing maintained markup is to find ways to increase initial markup (IMU).

Understanding Markup Language

Let’s make sure we are all speaking the same language. When I say, “initial markup, ” I am referring to the markup percentage placed on the goods when they are received from the manufacturer. Maintained markup is what is left after taking into account the cost of the markdowns. Stated differently, maintained markup is the difference between net sales and the gross cost of the merchandise sold. Gross margin is the difference between net sales and the net cost of the merchandise sold. Total merchandise costs include the cost of the goods, freight inward, any workroom costs, and any adjustments for earned discounts. It is clearly a different number than maintained markup.

The Correct Initial Markup is Crucial

Having the correct initial markup is the cornerstone to achieving the desired maintained markup. Have you ever wondered what the determining factors for initial markup are? Why do we double the cost? What does the term “keystone markup” mean, and where did it originate? My quest into the origin of keystone markup did not yield any definitive answers. One source at the National Retail Federation (NRF) seemed to think that there was an actual “markup key” in the early days of cash registers. This practice predated individually ticketed items, and pricing was oftentimes handled at the point of sale. One expert thought the term began in the jewelry business. Another thought more closely follows the dictionary definition of the word, which is a stone at the top of an arch that locks the other pieces in place. I suppose this makes sense, since 50 percent of a item is cost and the remaining half is markup. Regardless of origin, keystone pricing refers to a percentage markup applied to a product’s cost, although it is becoming an outdated term due to rising markups.

In my work as a retail consultant, I continually ask retailers to define their initial markup. The answers are quite interesting, and run the gambit from doubling the cost to adding $1 or $2 dollars to a multiplier of 2.2 or 2.3, as an example. These answers over time have led me to the conclusion that most retailers truly can’t explain what initial markup was intended to cover. There are three areas that IMU must satisfy: 1) desired net profit, 2) operating expenses, and 3) markdowns. Outlined below is a formula for determining initial markup given the objectives above.

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Self-Regulatory Organizations; ICE Clear Europe Limited; Order Granting ..  — Insurance News Net
ICE Clear Europe states that the changes to the Risk Policy amend the calculation of CDS initial margin requirements to comply with margin requirements under EMIR Article 41 and Article 24 of the implementing Regulatory Technical Standards. /5/ ICE ..

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