At the recent New York International Gift Fair, a saleswoman explained to me that one of the products in her line was perfect independents wanting to make some extra markup.  The cost was $7.50, and her locally-owned accounts all sold it for $19.95.  But when I asked whether a major retailer marked another item, at $12.50 cost, up to a still-reasonable $29.95, she appeared shocked and replied “Oh no, they don’t gouge!”

Ouch.  If an independent factors in the freight cost and charges $19.95 for a $7.50 item, that’s OK — but if a chain store takes a $12.50 item and marks it $29.95, that’s gouging? It just goes to show how ambivalent we are towards pricing issues today.

Price gouging is considered a pejorative term for setting unreasonably high prices, especially if there is no competition.  It is actually illegal in many states, although it is very difficult to define.  We are, after all, a free market country, and you can usually charge whatever you feel consumers will pay.

Certainly if you had an essential commodity such as milk, and no one else had any, it would be seen as price gouging if you decided to charge $100 a gallon. (Another example might be if your company set high prices on infant heart drugs, the subject of the Canadian blog that featured this illustration). But those of us in the gift and home accessory market aren’t usually selling anything that customers really need, so we should feel free to set whatever we feel are reasonable prices.  If customers don’t buy the merchandise, we know that the price is not workable.

There are many shopkeepers who feel that there is something intrinsically “fair” about keystone pricing, in which the wholesale price is doubled to reach the retail price. But it is difficult to pay expenses, especially in high rent locations, if you don’t take more than keystone on some items. The added markup can also help compensate for the items that will need to be marked down in order to sell.

The fact is that many consumers would not agree with the “fairness” of even keystone markup, if they knew that retailers make just as much on items as the individual or factory that made the merchandise. They have no idea how much overhead a store has to pay, and how narrow our profit margins can be even given a 50% markup.

I hope that you will banish the word “gouging” from your vocabulary, and experiment a bit with what margins work in your store.  Your customers will vote with their dollars, and you will soon know what items you need to keep at keystone — and what items take some additional markup to help keep the doors open and the lights on.

Happy Retailing,

Carol “Orange” Schroeder