Why do many department stores seek a mark-up of about 30% when some discount houses operate on 20% markup? 

1 Answer

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

There can be a number of reasons for this.  Let us look at two major types of reasons.

First, a department store may be able to command higher prices due to consumer tastes.  Consumers may feel that a "name" department store is superior to a discount house.  Therefore, they may be willing to pay the higher mark-up for the sake of the greater perceived quality.

Second, the department store may incur higher costs and therefore may need to sell at a higher mark-up.  Department stores may spend more money on advertising.  They may spend more money making their stores look appealing.  They may pay their sales staff more and/or hire more staff so as to have better services.  All of these would cause them to need to mark the prices of their goods up higher than a discounter would.

The higher mark-up, then, may be due to demand from consumers or it may be due to issues of the costs incurred by the supplier.