Markup and Pricing by Vertical

Markup and pricing planning is the discipline of setting the margin built into a product's first ticket — its initial markup, or IMU — from the maintained margin the plan needs and the reductions the category will take, then placing each product on a price ladder at a ticket that delivers that markup on its full landed cost. Initial markup is the share of the initial retail price left after landed cost; maintained markup (MMU) is the share of net sales left after markdowns, discounts and shrink; and the bridge between them is the reduction plan. The arithmetic is identical in every category; the inputs are not. This guide sets out the method, works one style through it, and then follows ten verticals through the places they genuinely differ.

It belongs to the by-vertical series beside open-to-buy by vertical, which converts the plan to cost with the cost complement set here; assortment planning by vertical, which builds the price architecture into an option list; markdown and exit strategy by vertical, which spends the reductions planned here; and the demand forecasting, store clustering, merchandise hierarchy, planning calendar and allocation and replenishment installments. Retail math for merchandise planners carries the full formula set, and pricing an apparel range across markets holds one ladder across currencies and duty regimes.

What initial markup, maintained markup and the bridge are

Initial markup is computed on retail, not on cost, and on landed cost, not on the factory price:

IMU % = (initial retail − landed cost) ÷ initial retail

A style with a $32.00 landed cost ticketed at $80 — the style in the worked example below — carries a 60.0% IMU. Quoted on cost, the same price is a 150% markup ($48 on $32), and a plan that mixes the two frames converts a retail budget to cost with the wrong ratio. The share of the ticket the cost consumes, 40.0% here, is the cost complement or cost-to-ticket ratio, the number that converts a retail open-to-buy into a cost buy. The initial markup formula page carries a calculator and the initial markup glossary entry defines the term.

Maintained markup is what the season keeps:

MMU % = (net sales − cost of goods sold) ÷ net sales

The two are connected by the reductions taken between the first ticket and the last sale — markdowns, promotional and employee discounts, and shrink, the planned reductions line of the plan. Every unit's initial retail ends up as net sales or as a reduction, while the cost stays where it landed. Measured as a percentage of net sales, the bridge is:

MMU % = IMU % − reductions % × (1 − IMU %)

The margin lost equals the reduction rate multiplied by the cost complement, not the reduction rate itself. At a 60% IMU each point of reductions costs 0.4 points of maintained markup; at a 45% IMU it costs 0.55, so a thin-IMU category pays more margin for every point it reduces. Rearranged, the bridge sets the target:

IMU % = (planned maintained markup % + planned reductions %) ÷ (100% + planned reductions %)

State the basis every time. Reductions measured on net sales are not the same number as markdowns measured on original retail: 12% of original retail is 13.6% of net sales (0.12 ÷ 0.88), and feeding one into a formula built for the other misstates the result; retail math for merchandise planners works the original-retail version. Maintained markup and gross margin differ by cash discounts earned on vendor invoices and by alteration or workroom costs; where neither applies, as in the example below, the two coincide. The maintained markup formula page carries the calculation, and the maintained markup glossary entry sets out what sits between the two figures.

Keystone is a convention, not a law

Keystone markup sets retail at double the cost: a 100% markup on cost, which is a 50% IMU on retail. It is useful shorthand on a wholesale line sheet, where a suggested retail at twice the wholesale price tells an account its starting margin in one word. As a margin target it fails in three ways.

It does not say which cost is doubled. Using the illustrative figures from the keystone entry — a $30 first cost with $6 of freight and duty, a $36 landed cost — keystone on first cost retails at $60, an IMU on landed cost of (60 − 36) ÷ 60 = 40%, while keystone on landed cost retails at $72 and holds 50%. The word survives both prices; the margin does not.

It ignores the reductions to come. A keystone ticket in a category planning reductions of 25% of net sales maintains 50% − 25% × 50% = 37.5%; a deep reduction plan needs a multiple well above two, and a category that takes almost no markdown may hold its plan below two.

And it assumes the reseller chooses the price. Under a MAP policy, a single prestige price across every door or a retailer's price point in toys, the margin is negotiated over cost, not multiplied from it.

The planning sequence: cost, target, ladder, reductions, maintained markup

The sequence runs forward from cost to maintained markup, but the target in its second step is computed backwards from the end. Each step is cheaper to change than the one after it.

1. Build the cost up to landed

Landed cost is first cost plus everything paid to put the unit in the warehouse: freight, insurance, duty, brokerage and entry fees, agent commission where one is paid, and inbound handling. A supplier quoting delivered duty paid folds those lines into one price; a brand buying free on board carries them itself. Duty follows classification: in the US Harmonized Tariff Schedule, apparel divides between knitted goods (chapter 61) and goods not knitted (chapter 62) and then by fiber, while footwear (chapter 64) divides by upper and outsole material, construction and, under some headings, value per pair. A design change can move a product between classifications, and with it the landed cost the ticket was set on. And landed cost at pricing time is an estimate — freight, duty and exchange rates are assumptions until the goods land — so it carries its date and its assumptions, not only its total.

2. Set the IMU target from the reduction plan

The target is set per category and channel, before the buy, from the maintained margin the category must deliver and the reductions it is planned to take. The second input varies with the category's structure: a markdown cadence in fashion apparel, a model-year closeout in footwear, floor-model discounts in furniture, testers and dated stock in beauty. The target is a category average weighted by planned retail; styles scatter around it, and the mix has to average to it at planned receipt volume.

3. Place each item on the price ladder

A price architecture is a set of rungs drawn before items are costed: an opening price point that brings a customer into the category, a better tier for the core volume, a best tier that frames the others, and one price ending across all of them — whole dollars, .95 or .99 — that signals the brand's register. The ticket comes from the ladder, not from the formula. Landed cost divided by one minus the target IMU gives the minimum ticket that holds the target, and the item goes on the nearest rung it can carry. When that minimum falls between rungs, round up and test whether the product earns the higher rung, round down and let the mix absorb a below-target style, or cost it to the rung — the target costing calculation.

4. Plan the reductions line by line

A reduction plan written as one percentage cannot be managed, because its lines have different owners: markdowns follow a markdown cadence owned by planning, promotions a calendar owned by marketing or trading, shrink loss prevention. Wholesale adds allowances, chargebacks and markdown money, which sit between gross and net sales — see gross-to-net sales and allowances percent. Several verticals add testers, floor models and dated write-offs. Each line is planned in dollars and as a percentage of net sales, so the lines add and feed the bridge.

5. Close the loop at maintained markup

Run the bridge forward with the IMU the ladder produced and the reductions planned, and compare the result with the financial plan. A shortfall sends the plan back up the sequence: a higher rung, a cheaper cost, a smaller reduction plan or a different mix. In season, track the bridge in two parts — IMU on receipts as costs land, reductions against plan as they are taken — so a miss arrives with its cause attached; how to build a margin bridge on retail-plan.com sets out the split, and decomposing a plan miss covers the sales-side bridge it is reconciled with.

Worked example: one style from landed cost to maintained markup

The figures below are illustrative, chosen because they divide cleanly. They are not benchmarks, not targets, and not drawn from any brand; the duty and freight lines are placeholders, not rates for any real classification or shipping lane.

An apparel brand is pricing a knit top for its own DTC channel. The financial plan needs a 50.0% maintained markup on the class, and the class plans reductions of 25% of net sales.

Step 1 — landed cost.

Step 2 — the IMU target. IMU % = (50 + 25) ÷ (100 + 25) = 75 ÷ 125 = 60.0%.

Step 3 — the ticket. The minimum ticket that holds the target is $32.00 ÷ (1 − 0.60) = $80.00. The class ladder has rungs at $58, $80 and $110, so the style lands on the middle rung at an IMU of (80 − 32) ÷ 80 = 60.0% — the convenient case; the empty-rung failure below covers the other one.

Step 4 — the season. The brand buys 1,000 units: $80,000 at initial retail and $32,000 at cost.

Net sales and reductions add back to the initial retail: $64,000 + $16,000 = $80,000. Reductions are $16,000 ÷ $64,000 = 25.0% of net sales, on plan — and the same $16,000 is 20.0% of original retail, which is why the basis travels with the number.

Step 5 — maintained markup. Cost of goods sold is the full $32,000, because the 20 shrunk units' cost is still a cost. MMU % = ($64,000 − $32,000) ÷ $64,000 = 50.0%, and the bridge agrees without the ledger: 60.0% − 25% × 40% = 50.0%. Twenty-five points of reductions cost ten points of margin.

When landed cost moves after the ticket is set

Keep the ticket, the units and the selling pattern, and move the cost: an additional duty of 8% of first cost adds $2.00 a unit and a freight increase adds $1.20, so landed cost comes in at $35.20 instead of $32.00.

Holding the ticket, IMU falls by the cost increase divided by the ticket — $3.20 ÷ $80 = 4.0 points — and maintained markup falls to ($64,000 − $35,200) ÷ $64,000 = 45.0%. Four points of IMU became five points of maintained markup, because the bridge multiplies IMU by one plus the reduction rate: at 25% reductions, every IMU point lost costs 1.25 points of margin. Re-ticketing to $88 restores the IMU — (88 − 35.20) ÷ 88 = 60.0% — but moves the style toward the $110 rung, and the reduction plan holds only if the style sells at $88 the way it was planned to sell at $80. Costing the next order back to the rung is open only for a style still to be reordered. Which answer is right is a judgement; that the choice is made before the price is published, while all three are open, is not.

The ten verticals compared

The table sets out where the four inputs differ. The arithmetic does not change between rows; the inputs do, and the sections after the table take each vertical in its own terms.

Apparel: the price band, the channel split and the markdown cadence

Apparel sets its IMU target by class and channel and builds the ladder inside each class from fabrication and make: an opening price point in core basics, a better tier in seasonal fashion, a best tier in premium fabric or construction. Fabric price and consumption sit inside first cost, so a fabrication change moves IMU before a ticket is discussed, and a blend change can move the duty classification too — which makes planning against fabric minimums a pricing question as well as a quantity one.

The structural fact apparel prices around is that one ticket carries two margin structures. Illustratively, a style with a $30 landed cost and a $120 suggested retail, sold to an account that keystones its cost, wholesales at $60: the brand's DTC IMU is (120 − 30) ÷ 120 = 75.0%, its wholesale margin is (60 − 30) ÷ 60 = 50.0%, and the account's IMU on the same ticket is (120 − 60) ÷ 120 = 50.0%. In DTC the brand keeps the higher figure but carries the whole reduction plan — markdowns, promotions, returns — plus fulfillment costs below the margin line. In wholesale the account owns the stock and takes its own markdowns, except the markdown allowances and chargebacks that come back on the brand's gross-to-net line. Assortment planning for DTC brands and for wholesale brands cover the two channels.

The reduction plan is a cadence: a first markdown timed to a sell-through threshold, deeper steps after it, and a stop where the residual goes to outlet or off-price. Returns sit upstream of the reduction plan: a unit returned late in the season, or in a condition that cannot sell at full ticket, comes back as a future markdown. And a broken size run clears below ticket whatever its total sell-through, so a class's reduction plan is partly a forecast of how cleanly its runs will sell. Markdown optimization for apparel covers the cadence.

Footwear: one price across the run, set by the franchise

Footwear prices at the model, and the franchise sets the price point: a running franchise or a boot line carries a price the customer already knows, and a new colorway on a carryover model joins at it. The price holds across the whole size run and every width, so the IMU is uniform only if the cost is. Where a factory quotes an upcharge for the largest sizes or a second width, those positions carry less IMU at the same ticket, and the model's planned IMU is the run-weighted average — a size curve that shifts toward the upcharged sizes lowers the achieved IMU without any price moving.

Landed cost is computed per model, not applied as a category uplift. Footwear duty turns on upper and outsole material, construction and, under some headings, value per pair, so two models with the same first cost can land at different costs, and a construction change made for weight or durability can reclassify a model. A cost that moves after the price point is published comes straight out of margin, because the franchise price is the number least free to change mid-run.

The model year is footwear's price reset. A carryover model's price is reviewed at changeover, the one date it can move without repricing pairs already in the channel; the successor arrives at its new price and the outgoing model goes to closeout, scheduled backwards from the changeover date rather than triggered by sell-through. Dealers prebook against the brand's price list, and where the brand runs a MAP policy the advertised floor bounds how far an account can promote a current model, concentrating reductions at the changeover. Broken runs clear below ticket whatever the headline sell-through, so odd-pair clearance is a planned line. See assortment planning for footwear brands and planning a model-year changeover.

Accessories & bags: a material ladder and two reduction plans under one ticket

Accessories ladder by size and material. Small leather goods — card cases, wallets, key fobs — are the opening price point and the gifting entry; crossbody and shoulder bags carry the better tier; the hero bag in the house leather and hardware frames the top. First cost is built from inputs with their own markets — the hide price, the cutting yield, the hardware's casting and plating — and duty follows the outer-surface material, so a switch from leather to textile is a landed-cost change as well as a design one.

The pricing problem specific to accessories is that one ticket can carry two reduction plans. The evergreen core — black leather, house hardware, replenished season after season — is planned to sell at full price with a small reduction line. A seasonal colorway on the same body, at the same ticket, is bought once and carries the fashion markdown. Illustratively, to maintain 55%, the core with reductions of 5% of net sales needs an IMU of (55 + 5) ÷ 105 = 57.1%, while the seasonal colorway with reductions of 30% needs (55 + 30) ÷ 130 = 65.4%. Same body, same cost, same price: the seasonal colorway cannot hold the core's margin. The answers are a colorway premium, a shallower seasonal buy, or a blended target that accepts the seasonal layer as lower-margin — not one IMU target applied to both as if they took the same reductions.

Gift sets priced below the sum of their parts give away margin the way a markdown does, so the plan prices them in advance. Attached items sold beside a host program — a belt with a denim line — inherit the host's promotional calendar whether or not their own plan expected it. See planning accessories lines.

Home & furniture: fabric grades, the container and the floor model

Upholstery is priced by fabric grade: one frame is offered across a ladder of grades, each a rung with its own ticket, and the frame's IMU is planned across the expected grade mix. Casegoods ladder by finish and size, and every price is set months before the goods arrive, because furniture runs on long lead times.

Freight per unit is a function of the container's fill, not a rate card. Furniture ships by cube and the minimum economic order is a container, so the freight a unit carries depends on the container rate and how many units share it. The figures below are illustrative: a sofa with a $400 first cost, $40 of duty and entry fees and $60 of drayage and inbound handling, ticketed on a $1,599 rung.

Nothing about the sofa changed between the rows. A short run that leaves the container part-filled, or a rate that moves between order and booking, takes points off the IMU after the price is on the floor — which is why freight belongs in the plan as a dated assumption, and why OTB planning for home goods treats open-to-buy as a container schedule. Whether white-glove delivery is built into the cost the ticket is tested against, recovered through a delivery charge or carried as operating expense is decided once for every model, or the ladder cannot be compared rung to rung.

The reduction plan carries lines apparel does not: floor models sold as-is when a floor set changes, damaged and returned pieces cleared through an outlet or warehouse sale, and event-weekend promotions that discount the whole floor. Where the business sells to dealers, the dealer prebooks at a quoted dealer price and sets its own ticket, so the brand's margin is the dealer-price margin and its reductions are the allowances it grants. A container-quantity overhang is not a pricing problem; the markdown and exit strategy guide covers it, and merchandise planning for home and furniture brands covers the category.

Outdoor: spec tiers, the prebook price list and MAP

Outdoor ladders by specification: a shell jacket line by membrane and construction, an insulated range by fill and warmth, a sleeping bag range by fill power and temperature rating, a pack range by volume and suspension. Each rung is a technical claim the customer can compare, so a price that does not match its spec reads as an error rather than a premium. The price is fixed for the model year at prebook: the dealer price list goes out with the line, dealers book against it, and moving the price mid-year reprices goods already on dealer floors. It has to be right once, a season ahead of the first consumer read.

Where a brand's dealer-protected products sit under a minimum advertised price policy, MAP bounds the reduction plan as well as the price. The policy governs the advertised price rather than the selling price, but it removes deep promotion as a lever while the model is current, so planned reductions concentrate in a few lines: the model-year closeout, the at-once and fill-in residual, pro-purchase discounts where the brand runs a program for guides and industry professionals, and warranty and repair stock. MAP moves the reduction plan from markdown depth to closeout timing. A brand's own DTC channel that promotes below its dealers' advertised floor undercuts the accounts that prebooked the line, so it is bounded in effect too.

Landed cost splits two ways inside one line: soft goods follow apparel's fiber-and-construction duty logic, while bulky hard goods — tents, packs, sleeping bags — carry freight by cube, which weighs more heavily on a bulky, lower-cost item than on a dense, expensive one. Counter-seasonal weather risk widens the reduction plan for insulation and snow categories, because a season that does not arrive cannot be priced around after the fact. See merchandise planning for outdoor brands.

Sporting goods: launch price, team pricing and the ladder reset

Sporting goods price by sport and by the season of the sport: a bat and glove line sells into spring, a football line into a late-summer team window, a ski or snowboard line into a winter that may start late. Dealers prebook each sport's line ahead of its season, and within a sport the ladder is built from a flagship at a launch price, with the previous flagship and lower-spec models stepping down beneath it. The ladder resets when the successor launches: the outgoing flagship takes the next rung down or goes to closeout, and the IMU it was bought on was set for a price it will no longer carry. Planning that step-down at the original buy, as a planned reduction, is what lets a model year land its margin.

Team business is a separate margin structure inside the same brand. Uniforms and team equipment sell through team dealers at team prices below individual retail, ordered in windows tied to the sport's season, with decoration added by the dealer where the order calls for it. Because team product is made or allocated to an order, it carries almost no markdown exposure; its reductions are allowances and order-size pricing. It is planned on its own IMU rather than averaged into the retail line.

Consumables — balls, grips, strings, protective replacements — sit at the other end: stable prices, continuous replenishment and a reduction plan close to shrink and promotions alone. Where dealer-sold hard goods carry a MAP policy, the closeout is a channel-and-date decision rather than a discount-depth one and follows the policy's release dates, and bulky equipment carries freight by cube as it does in outdoor. See merchandise planning for sporting goods brands.

Health & beauty: one price across the shade ladder

Beauty prices at the franchise. A prestige foundation, lipstick or concealer carries one ticket across every shade in its range, and one ticket across shades with different costs makes the franchise's IMU a mix: pigment loads, specialty ingredients and each shade's batch size move cost per unit while the price stays still. The ladder runs on two other axes. Size runs from a travel or mini format as the opening price point, through full size, to a value size or refill; tier runs from mass through masstige to prestige, and the tier sets the ladder a franchise is priced against. Components — the compact, the pump, the glass — sit inside first cost beside the formula, so a packaging upgrade is a margin decision.

The reduction plan is built from lines no apparel plan carries. Testers are consumed at the counter and written off. Gift-with-purchase moves an aging batch or launches a franchise, and where its cost sits in cost of goods it is a margin line the plan has to hold. Shelf life fixes a batch's expiry at manufacture, and retailers' minimum remaining-shelf-life rules at receipt turn it into the last date the batch can ship, so stock near that limit is written off or sold through secondary channels — the arithmetic is in dating rules and weeks of supply. Period-after-opening (PAO) governs use once the pack is opened and plays no part in the ship date. Fill-line batch minimums produce slow shades in quantities their demand never reaches, which is where dated write-offs come from.

Mass and prestige split the price-control question. Where a prestige brand holds one price across every door and avoids public markdown, its reduction plan is mostly testers, gifting and dated stock. In mass, the retailer sets its own price points and promotional calendar, and the brand funds part of it through trade promotion, which is a reduction line rather than a marketing footnote: off-invoice allowances, scan-based funding and display fees that sit between the brand's gross and net sales. A gondola reset on the retailer's schedule removes shades regardless of the brand's plan, forcing an exit on a date the brand does not choose. See merchandise planning for health and beauty brands.

Toys & games: the retailer's price point and the royalty line

Toys are priced backwards from a point the retailer has already chosen. Where a retailer plans its toy aisle to a set of retail price points, the brand designs a product to land on one: the retail point less the account's margin gives the wholesale price, and the wholesale price less the brand's target margin gives the most the product can cost. In toys, target costing is the pricing method, not a check applied after it.

Licensed product adds a cost that moves with price. Where the royalty is a percentage of the licensee's net sales, it scales with the wholesale price rather than sitting in landed cost, and a minimum guarantee turns part of it fixed. The figures below are illustrative, not terms from any license.

At a $60,000 minimum guarantee, royalties earned at $1.44 a unit cover the guarantee only from 41,667 units; below that volume the guarantee is paid regardless, so the royalty per unit rises as volume falls. The minimum guarantee turns a variable cost into a fixed one, and below the guarantee the margin dollars on a licensed line fall faster than its volume. Planning a licensed product window covers sizing the commitment.

A retailer buying direct import takes the goods at the origin port and carries its own freight and duty, so the brand's price and margin differ from a domestic sale that carries those costs. The gifting peak concentrates the season into the fourth quarter, so the reduction plan is a post-peak plan: the holiday residual, the markdown allowances in each account's terms, and the licensed residual that has to be gone by the contract's sell-off date. See merchandise planning for toy and game brands and planning the gifting calendar.

Baby & juvenile: certified platforms, feature tiers and registry pricing

Juvenile hard goods price the platform, not the item. A car seat shell or a stroller chassis is certified in specific configurations, and the ladder is built on top from features: fabric, canopy, harness adjustment, extended-use modes. Each configuration that has to be tested carries its own certification cost, amortized over the units expected on it, so a short-run configuration carries more cost per unit than a long-run one at the same first cost — and that testing cost belongs in the cost its ticket is tested against.

Bundles are the juvenile price structure apparel does not have. A travel system pairs a stroller with an infant seat at a ticket below the two sold separately, and the bundle's IMU is the weighted blend of its parts at the bundle price. Illustratively, a stroller with a $120 landed cost at $300 and an infant seat with a $60 landed cost at $150 each carry a 60.0% IMU; sold together at $399, the bundle's IMU is (399 − 180) ÷ 399 = 54.9%. The $51 bundle discount costs 5.1 points of IMU, and because it is a planned price rather than a markdown, it belongs in the target, not in the reduction plan.

Product lives run across several model years, and a price held across them is a margin that erodes as cost moves; the changeover — a new chassis, or a pattern change on a continuing one — is the date to reset it. Where dealers sell under a MAP policy, the outgoing model's closeout is bounded as it is in outdoor. Registry adds its own reduction line: a completion discount the registry retailer offers the registrant on items still unbought as the arrival date approaches. Whether the brand funds any of it is a negotiation, but it is part of the price the item realizes in that channel. See merchandise planning for baby and juvenile brands and planning with registry demand.

Jewelry & watches: metal pass-through and the published price

Fine jewelry has a cost base that moves daily: metal priced by weight and purity at the market, stones, bench labor and findings. Purity is arithmetic — 14 karat is 14 parts gold in 24, or 58.3%, and 18 karat is 75% — so a piece's metal content is known to the gram and its cost moves with the metal price whether or not anything else does. Illustratively, a ring costing $400 — $200 of metal, $140 of stone and $60 of labor and findings — tickets at $1,000 for a 60.0% IMU. A 25% rise in the metal price takes the metal to $250 and the cost to $450, and the same ticket now carries 55.0%; restoring 60.0% takes a $1,125 ticket.

Three pricing policies handle that movement. Re-ticket on a trigger: hold the price inside a band of metal movement and reprice when the band is breached. Price the metal separately: carry the metal content on its own markup, reviewed on a schedule, and the design on another. Absorb: hold the price and let IMU move, which is a margin bet on the metal. The trigger band is set before the metal moves, because a band chosen after the move is a price decision dressed as a policy. Whichever policy is chosen, price on replacement cost, not on the cost of the piece in the case: a ring made when metal was cheaper shows a healthy IMU on its historical cost, but its replenishment will be costed at the current metal price. Planning margin on a moving cost base covers the triggers and the levers.

The reduction plan is thin by design. A public reduction reprices what customers already own, so fine jewelry exits through remount, melt, consolidation between doors and private sale — the levers the markdown and exit strategy guide sets out. Pieces on memo are held on consignment and invoiced only when sold, so they carry no markdown line; an unsold memo piece goes back. Where a watch brand publishes a retail price and sells through authorized dealers, the dealer's IMU is set by the brand's list and the dealer's cost, and the dealer's planning variable is which references to hold and how deep. A reference the brand discontinues is the watch equivalent of a closeout. See merchandise planning for jewelry and watch brands.

How markup planning breaks

The method fails in four predictable places, and each passes every arithmetic check, because the formulas balance on wrong inputs as readily as on right ones.

IMU set from history, not from the reduction plan

Last year's achieved IMU is the easiest target to set, and it is wrong whenever the reduction plan has changed. Illustratively, a class that took reductions of 20% of net sales on a 58.0% IMU maintained 58.0% − 20% × 42.0% = 49.6%. Copy the 58.0% into a season that adds a fashion layer, an outlet channel or a model-year closeout and plans reductions of 25%, and it maintains 58.0% − 25% × 42.0% = 47.5% — 2.1 points of margin lost to a reduction plan the target never saw. Write the reduction plan first, line by line, and compute the target from it; a target that does not move when the reduction plan moves was not computed from it.

Landed cost moving after the price is set

The worked example is the whole failure in one table: $3.20 of cost added after an $80 ticket is published takes 4.0 points off IMU and 5.0 off maintained markup. It recurs wherever the cost includes something the brand does not control — duty, freight, the exchange rate, metal, a container's fill — and it is invisible in a plan that stores landed cost as one undated number. Carry landed cost as an estimate with its date and assumptions, set a re-plan trigger for each assumption before the season, and re-run IMU on receipts as goods land, while the ticket, the reorder and the reduction plan can still respond. Planning margin on a moving cost base covers the triggers.

Price ladders with empty rungs

A ladder is drawn at line planning and filled at line review, and between the two, styles drop: a cost comes back too high for its rung, a sample fails, a fabric minimum cannot be met. Each drop is decided style by style, so a rung can empty without anyone choosing to empty it. An empty opening price point loses the customer who enters the category there; an empty best rung removes the anchor that made the better rung look reasonable. The category IMU moves too, because it is a weighted average: losing the styles that carried above-target IMU can pull the category below target while every surviving style is still priced and costed exactly as planned. Review the ladder as a ladder — rungs, coverage and category IMU at planned volume — before the styles on it; line planning vs assortment planning covers where the price architecture is owned.

Markdown money hiding a missed IMU

Markdown money — a vendor allowance that funds an account's markdowns — can make a season report on plan while its IMU missed. Using the illustrative figures from the worked example, take a retail account that imports the same style FOB, carries the $35.20 landed cost, holds the $80 ticket and takes reductions on plan at 25% of net sales: its margin is 45.0%. The vendor funds $3,200 of markdown money, recorded as a reduction in the cost of the vendor's goods, so cost of goods sold falls from $35,200 to $32,000 and gross margin reads ($64,000 − $32,000) ÷ $64,000 = 50.0%. The season reports on plan, and the plan learns nothing: the IMU miss and the vendor's support offset each other in one line, and next season's target is copied from a margin a vendor paid for. Report IMU on receipts, reductions and vendor allowances separately, keep the markdown line gross as retail math for merchandise planners sets out, and plan markdown money as its own line rather than as support a reduction plan cannot stand without.

Where RetailNorthstar fits

RetailNorthstar is a merchandise planning platform — OTB, assortment and line planning, buy planning, allocation, sizing, PO and WIP tracking and analytics on a shared data model. As the keystone markup entry sets out, IMU is planned by category in the same model as open-to-buy and the buy plan, so a cost change on a style shows its effect on IMU during buy planning rather than after the buy is placed.

Setting the target, drawing the ladder, choosing the price endings and negotiating the allowances remain decisions that belong to the merchant and the planning team. OTB planning holds the budget the cost complement converts, assortment planning is where the price architecture becomes options and depth, and margin planning sets out how OTB margin targets, buy depth and full-price allocation connect in one workflow.

Related resources

• →Retail Math for Merchandise Planners — the full formula set
• →Initial Markup Formula and Maintained Markup Formula — both ends of the bridge, with calculators
• →Pricing an Apparel Range Across Markets — one ladder across currencies and duty regimes
• →Markdown and Exit Strategy by Vertical — how the reduction plan is spent
• →Planning Margin on a Moving Cost Base — re-plan triggers when cost moves
• →Keystone Markup, Landed Cost, Planned Reductions and Markdown Money — the terms