Response to Sean's Question: What's the best way retailers can achieve a healthy profit margin?

I agree with Sean’s post. When I purchased clothes I never thought about the stores profits or how they attained the price they post on the tags. What I think about most is if a price is too high or if it is a good deal. This is how most shoppers determine if they will purchase a product, based on satisfaction and perceived value.

I think the best way retailers can achieve a healthy profit margin is not to begin with too overpriced items. This way more customers will be willing to purchase the items at full price and will be less likely to wait to purchase the item when it goes on sale. Typically stores still make a profit even on sale items because other customers have purchased the product previously and the markup is so high there is still room for profit. However, like Sean had mentioned this is not a healthy profit margin to only rely on discounted sales and the previously made sales. Stores need to find the perfect balance so most of their inventory is sold at few price and the leftover from each season is sold at a discount so the retailer still earns a healthy profit margin.

What if all retailers stopped marking up their prices over 200% from what it costs to produce them? Do you think the industry would benefit from this or in the long run be damaged? 

Producing your own Product Line

While working on my marketing project I have thought about how much easier it is to produce a line and sell it in already existing stores than to open your own store. When opening a store you have to find a convenient location where people will see the store and be intrigued to come in, pay the rent, renovate anything that needs to be fixed or changed to suit your business, and pay salaries for those working in the store. If you create a line you take out all of those costs. What you need to worry about is keeping the price low enough because what I learned from the store in downtown Keene they markup prices 50% from what you sold the products to them, and what they sell them as on the shelves.

I think more people should try to start out with lines and work their way up to a store. By doing this I feel there is less risk, fewer businesses will close, and the entrepreneur will have less debt. I think people take on too much when they believe in their idea, which is not always a bad thing, but in a tough economy it is better to play it safe with finances. But with only having a line and going through another person there is less chance of gaining higher profit. This is an option the entrepreneur will have to decide for themselves to see which is better for them.

Do you think it is better to take the risk and open up a business right away? What would be other problems with only creating a line or opening a store?