Cheat Sheet: Retail Markup on Common Items

By Kentin Waits on 15 December 2010 (Updated 9 December 2011) 15 comments
Photo: net_efekt

The holidays typically bring a rush of retail shopping. And during tough economic times, retail shopping brings endless commercials and high-decibel ads all proclaiming “low prices” and “deep discounts.” But how can we determine the value of a discount if we’re unaware of the average retail markup? If those jeans are priced 200% above wholesale, does a 15% discount really seem that generous? (See also: Party Like It's 19.99: The Psychology of Pricing)

Very few resources exist to research the average markup that retailers enjoy between their wholesale costs and retail prices. The whole topic seems shrouded in complex formulae and arcane insider knowledge. Even in the Information Age, online searches on the subject bring wild variances in statistics (when they exist) and huge gray areas of subjectivity (when they don’t).

With a few days worth of research, I’ve narrowed down the range that most retailers employ when pricing their items. The list below outlines some of the more common consumer goods and the associated markup from wholesale to retail. One caveat: Consumers in America have a wide choice in retailers, and big box stores, outlets, malls, and boutiques all have their unique pricing structures based on overhead such as advertising, real estate prices, buying volume, staffing, etc. No single rule holds true for each, and broad ranges are the norm. However, from a consumer perspective, a broad range based upon research is better than no idea at all. A knowledgeable consumer is better equipped to understand the real value of a discount based upon a retailer’s real cost and not the markup/markdown shell game that seems to entice us so often.

Clothing Markups: 100-350%

Jeans are the biggest culprit in the clothing category. The price of boutique denim jeans can reflect a markup of 350%. Jeans from mid-level retailers like Kohl’s or JCPenney are slightly saner with an average markup of 115%.

Shoe Markups: 100-500%

Markup is as varied in the footwear industry as sizes and styles. Typical cross-trainers or athletic shoes carry a 100% mark-up, while higher-end fashion shoes at boutique stores can be marked up by as much as 500%.

Cell Phone Markups: 8-10%

The entire category of electronics has some of the lowest markups around. Cell phones, for example, are only bumped up about 8% between wholesale and retail. The profit center for phones lies in the service contracts and usage fees. Manufacturers can operate with a lower retail markup because the real money is in the service.

Furniture Markups: 200-400%

No industry manipulates the meaningless MSRP (Manufacturer’s Suggested Retail Price) quite like the furniture industry. Salespeople usually receive a 15-20% commission if they sell an item at the inflated MSRP. But there’s another helpful abbreviation to know: MAP (Manufacturer’s Advertised Price). This lower price is the minimum at which most retailers are allowed to sell the item. Salespeople resist consumers who ask for this price and only receive about 7% commission on MAP sales.

Grocery Markups: 5-25%

Grocers certainly operate on slimmer profit margins than most other retailers. According to the Retail Owners Institute, stores typically maintain a narrow margin of 5-8% on the staples and then broaden their margins on luxury or indulgence items (think high-end coffees, chocolate, wines, etc.).

Cosmetics Markups: 60-80%

According to the research firm Euromonitor, the average markup on premium cosmetics is 78%. Since most cosmetics are composed of various combinations of good ol’ dirt, oil, wax, and fragrance, this relatively small markup adds up to big profits.

Prescription Medicine Markups: 200-5,600%

According to an expose by the Detroit ABC affiliate WXYZ-TV, pharmaceutical companies enjoy a 200-5,600% markup on their drugs in the US. Canada and several European nations impose a ceiling on drug prices and actively negotiate with drug manufacturers to keep costs down. No such safeguards exist here; even generic drugs in the US can be marked up by as much as 1,200%. Sure, development costs are high for some of these life-saving medications, but the markup has no expiration date.

New Car Markups: 8-10%

Not factoring in extended warrantees, finance charges, and other add-ons, auto dealers markup car prices by about 10%. Dealers’ intricate pricing structures involve invoice prices, transportation charges, dealer holdbacks, and incentives — enough confusing consumer fodder to fill a dozen articles. Suffice to say, the more you know about the secret cabal of car dealerships and how they arrive at their sticker prices, the better chance you’ll have of knowing where to begin your negotiating.

Eyeglasses Markups: 800-1,000%

It’s amazing but true: Some opticians charge 1,000% over wholesale for the hottest designer frames. Malls and larger chain stores are the worst offenders, with many other peripheral costs factored into the price of those fancy frames.

I'm not suggesting that retailers shouldn’t be paid for the services they offer. Buying low and selling high is as American as apple pie and credit card debt. Retailers often have huge cost-structures to maintain — all supported by tweaking that markup and (hopefully) influencing consumer behavior by hitting the sweet spot between cost and perceived value. But since this whole system rides on the backs of you and me, isn’t it worth unpacking, examining, and understanding exactly what we’re paying for?

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Guest's picture
Elizabeth

Wow... This was an eye-opener! I used to work in retail, and we generally marked up items by 100%. (So a wholesale item at $5.00 would sell for $10.00.) This was standard practice across stores I worked in, though books had a much much lower mark up.

However, it's important to remember that the mark-up isn't pure profit. There are shipping costs, staff salaries, building costs, expenses, etc. that come out of that amount as well.

I'm sick of playing the sales and discounts game though. I'd prefer to pay a reasonable price all the time than play games.

Guest's picture
Gooch

Don't forget jewelry - back in 1998 the setting for my wife's engagement ring was $115 wholesale, and $650 retail (diamond district in NYC where I had a connection and got wholesale).

DIamonds are also artificially inflated, but that's a different post...

Guest's picture
Brighde

Something to keep in mind about prescription drugs, it may only take pennies to produce a tablet, but it can take upwards of $800M to discover and develop one drug. That's before it ever reaches mass production. For every 1 drug that makes it to market, 100 compounds are discovered and discarded representing years of manpower and investment. Those costs need to be recovered for innovation to continue.

Most of the pharmecutical research is NOT being done or funded by public entites. However, it is HIGHLY regulated and controled by public entites. The resources to support that research are provided by those markups.

Guest's picture
Consumer watchdog

Thank you phaaceutical rep for that input.

Guest's picture
jim

This is interesting stuff and useful to know.

Cell phones and prescription drugs seem very different products to me. Cell phones require contracts and the hardware is subsidized heavily. So that makes the pricing very unique and not comparable to straight purchase of a pair of jeans or gallon of milk. Drugs are different in pricing based on who's paying the bills.

Guest's picture
Robert

This is just not good information. I have worked in the furniture industry for 40 years .
The industry average mark up is consitnly about 42%-43% Some major public own chains hit as high as 50% mark up . Its in there annual report. and sales comishions range from 3% to 7%.

Guest's picture
Robert

iF YOU UNDERSTOOD WHAT MARK UP MENT YOU WOULD KNOW THE NUMBER CAN NOT BE GREATER THAT 100

Mark up is the part of the total price,after cost of goods. total is 100% that is the selling price . If cost is 50% mark up is 50%=100

if cost is 40 --mark up is 60= always =100 /// if cost is 10 mark up is 90=100

if cost is 90 markup is 10 =100 selling price

Guest's picture
Guest

Sorry Robert but what you are talking about is margin not markup. Markup can go over 100% and usually does.

Guest's picture
Guest

You're completely wrong Robert and should do a little research before you go stating such confident comments. For example an item cost me $100.00 I turn around and sell it for $300.00 which is 300% markup in which I would make 200% profit for such sale. Simply look at the cost being 100%, $5.00 is my cost and I need to make $5.00 off of the product I would mark it up 200% which is $10.00. Take $5.00 & multiply it by 200% or 2.00 (decimal) and wallah!!!

Guest's picture
Other Guest

Guest, you have the right idea. Markup can be over 100%, but your example was flawed. I'm just posting to clarify for other readers, not just 'picking'.
An item costing a retailer $5 with 200% markup would retail for 5 + 5*2 = $15.
To charge $10 for that item, the markup would be 100% ... 5 + 5*1 = $10.

Guest's picture
Guest

Duh, that's margin.

Guest's picture

video game hardware (consoles and handhelds like 3DS and PSP) have very low markup as well. i believe retailers make about $5 in profit for every system they sell. maybe $10. i know the markup and profit for retail stores on video game software is higher than the software but still not so much. i believe they make 20% on each game they sell? about $10 for every $50 game? someone who works at gamestop or EB or such should comment and enlighten us. of course, these markups take into account not just paying rent, electric, heat, anti-theft alarm system, cameras, cleaning the carpet professionally, employee discounts and their own wages, along with shrinkage (industry term for theft).

Guest's picture
Guest

I don't work at Gamestop, but it's well known that Gamestop makes its real money on used games. For new games, they'll give you something like $20 (I don't even know if this is cash or store credit, but it might be the latter) and then sell the game for about $5 less than the new price of $60. This aspect of Gamestop's operations is angering some video game manufacturers since Gamestop can sell a new game many more times than the studios can, and so try to avert this by putting one-use redeemable codes for downloadable content (or in extreme cases, to be able to play the game at all without an extra "activation fee"). Personally, I think the manufacturers should stop whining --- the first sale doctrine should apply to them like it does to all sellers of retail products.

Guest's picture
Guest

New auto prices have a 320% mark-up.........don't know where you came up with 10%, a dealership couldn't even exist with that narrow profit margin and certainly wouldn't account for the multi-million dollar complexes all the dealers have!!

Guest's picture
Guest

show me where you got 320% markup on new cars. It is closer to 8-10%. look at the invoice on a new car against the msrp and you'll see an average of only 8-10% mark up. people think the msrp is a rip off but those invoices are accessible if you look. people always want to negotiate on a car but how many of us ask to pay invoice on furniture or even ask to see the invoice? The same with clothes and other items that we are paying ridiculous mark ups on.