Case Synopsis, Uses, Discussion Questions, and Answers
CASE 22- under New Management
Synopsis: A new department store manager learns firsthand about markup and markdown in
Use:
Chapter 13 Calculating markup, initial markup, and maintained markup, Markdown and vendor
relationships, Delivering value to the consumer and the role of pricing
Discussion Questions
1) Given the soft-goods targets, are these marked correctly? If not, what should the initial
retail price be to obtain her 60 percent minimum initial markup percentage?
Elise received 200 units at a cost of $16. She also received 100 units costing $17.50. The first
step is to calculate the initial markup based on her plan. The plan asks for a 60 percent initial
2) By noon another shipment arrives. This time it is from SNEAK HERS, delivering her
preholiday sneakers. Elise notices that the high tops do not have tags and need to be
priced for the floor. She has her associate calculate the retail price. The invoice indicates
the cost is $8.75. What should the initial retail price be, given her markup target?
3) -shirts from back to
school have not been moving, and she has sweater shipments due in the next two weeks.
33 percent markdown, what is the new selling price?
Case Synopsis, Uses, Discussion Questions, and Answers
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The first step is to find out the price they were initially. The information in the problem gives
4) After six weeks passed, Elise analyzes her sales of the FUNWEAR prewashed jeans. Of
her original 200 units this is what she found:
50 units sold at the original retail
34 units sold at a 38 percent markdown
116 units sold at a 44 percent markdown
What was her average maintained markup percentage? Did it meet her goals? Explain
how this was possible.
Maintained Markup is the actual sales realized for the merchandise, minus its costs.
a. First calculate what all of her sales were.
50 units sold for $40 (remember from question #1, the tag needed to
be changed) = $2,000
b. Now, the student needs the following:
Actual sales were = $2,000 + $952 + $2,598.40 = $5,550.40
Actual costs: Back to Question #1 where we originally bought 200 units at
5) Using the information in question 4, explain to management the possible reasons
multiple markdowns could have been taken and why we compare to plan.
Multiple markdowns are taken for many reasons in retail. One reason is a bad buy. As the store
manager, you brought in the merchandise your buyer thought would sell, but due to color, style,
Case Synopsis, Uses, Discussion Questions, and Answers
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A second reason for making multiple markdowns could be competition. Price pressure from
competition can create the need for a store manager to take an additional markdown to stay
competitive. This could especially be the case with prewashed jeans as these are not so unique
and could face head-to-head competition from other retailers, making price comparisons a
reality for the consumer.
6) FUNWEAR is a long-
the lost gross margin dollars. Why would it provide this money to Elise?
Markdown dollars are one way that a vendor communicates that they are a partner with the
7) Seventy-five toy trains were bought for the toy area at $3.50 each and were then priced at
$10.00 each. Elise is running a department promotion and wants to reduce the price of
the trains. To what can she reduce the retail price in order to meet her maintained
markup goals?
Cost of the toy trains was $3.50 and they retailed at $10. Her targeted maintained markup % is
25%. The question then is what can she drop the price to so that (new retail price– cost)/new
retail price is equal to or more than 25%? This then becomes (X-3.5)/X=.25 where X will be
8)
this strategy allow for better markup percentages? How are these related to perceived
value?
These strategies allow you to better markups as it differentiates you in the marketplace. The
increased customer service and personal contact is worth something to the consumer vs just a
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