Cheat Sheet: Retail Markup on Common Items
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?