Like many retailers, you probably committed the magic ratio of 2.5 to memory. That is the classic markup retailers typically use to determine their initial ticket retail. Companies will often go to extraordinary lengths to ensure that their products meet that magic ratio. And yet, all too often, your final selling price is but a fraction of your initial price.
Do you wonder where all that initial markup went at the end of the season? Are you concerned about your profitability? If so, I’d like to share with you the concept of AUR (Average Unit Retail).
Simply put, your AUR is the average price that consumers pay for your product. It includes all discounts and markdowns and is weighted towards your best-selling product categories.
You can see why your AUR, not your initial ticket retail, impacts your profits. This is the real price that your customer pays and includes the cost of promoting your product. This is the price that tells you if your promotional strategy is working or if your pricing strategy is in line with your business reality.
To give you an example, a retailer with an existing line of sweaters decided to introduce a lower-priced line to add new revenue. While the line saw top-line growth, profits remained flat. Examining AURs for its sweater classification showed that AURs had dropped precipitously. Far from growing the business, the lower-priced sweaters were cannibalizing on the existing, more profitable sweaters.
Knowing the difference between your initial ticket retail and your AUR can give you another tool in managing profitability. It can also give you guidance on your promotional strategy.
Would you like to discuss your AURs with me? Please give me a call.