2011 and beyond part 2

The cotton and production shortages of the previous blog takes me to an article in The Sunday Times asking if this spells the end of the £5 dress. It started with a story of Lorna Kenyon and her friends taking the ‘Primark Cocktail Challenge’. This involved buying a cocktail at Claridges (around £17 + tip) and buying an outfit in Primark, Oxford Street, for the same price or less. At the time it was not difficult to pick up a dress, shoes and clutch bag for less than £20.

However, add into the mix the VAT change to 20% in January and retailers are not going to be able to absorb all the increases. The consensus seems to be that retailers will try keep their basics at the same level, either by reducing margins or cutting out details on the products, and try to get it back on the higher margin items. For example if you can keep a basic item at £9.95 the public may still perceive the retailer as ‘value for money’ and be more accepting of a fashion item increase from £24.95 to £29.95.

I’m reminded of a story of a friend who needed to go to a DIY store for a ‘sink plunger’. Any idea how much they cost? No neither did he, as you buy them once every 10 years or so and forget what the last one cost. Was it £1.95, £4.95 or £9.95? Whatever it was, he needed it and was going to buy it. He wasn’t even going to bother going to other DIY stores to price check. Incidentally the prices here  are between £1.46- £17.98.

The point is that, the customer does not know your purchase price, so don’t slavishly apply set mark-ups to all products but apply intelligent pricing for Spring 2011. Just be careful to factor into your gross margins that you will be likely to sell a lot more of the basics at £9.95 than the fashion items at £29.95.

I bet you wish you’d paid more attention in maths lessons now!!!

Tony Heywood – Gilcrest Services Ltd
Retail Troubleshooter
Business Turnaround and Recovery

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