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why do many department stores seek a markup of about 30% when some discount houses...

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user1884627 | eNotes Newbie

Posted April 22, 2013 at 3:16 AM via web

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why do many department stores seek a markup of about 30% when some discount houses operate on a 20% markup?

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted June 7, 2013 at 3:15 PM (Answer #1)

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There are several reasons why discount stores are able to operate with selling items at a lower markup.

Usually, discount stores sell items in bulk with customers required to buy a large number of the same product. This increases the volume sold by the stores and the revenue that is earned. As discount stores sell large numbers of a product it gives them the bargaining power and they can procure the same from manufacturers at a lower rate.

Discount stores also reduce their operational expenses in many ways. These stores are usually built out of the city where the price of land is lower and the rent that has to be paid is also lesser than it is for department stores built in the middle of cities at locations that are closer to customers. Discount stores are able to make more efficient use of logistics and do not offer any frills which could include free parking, areas for customers not intended for product placement, the number of sales persons employed to help customers, among many others.

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