Retailing – some home truths!

The 5 biggest retail mark-ups

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Rhian Nicholson, 16:20, Wednesday 8 June 2011

 

There are some products we pay ridiculously inflated prices on either because the retailers have us over a barrel or we’re looking to treat ourselves regardless of the cost.

While manufacturers set the basic price — and often line their pockets handsomely in the process — retailers add substantial mark-ups to ensure their own profit margins remain high.

Indeed, the hefty mark-ups on goods from our morning coffee to a £1,000 diamond ring can make the prices that we pay at the convenience store, which are generally 20% higher than those in the supermarket, pale into insignificance.

Here are some of the worst offenders:

Bottled water — as much as 2,000% mark up

It’s one of the great convenience cons; paying pounds for something we can get out of the tap for next to nothing.

We drink over 2 billion litres of bottled water a year whether grabbing bottles on the run or because we believe it’s better for us than tap water.  In fact, it’s now so popular that it became part of the UK’s “typical shopping basket”.

Bottled water can cost anything from 16p for two litres at Tesco to around $50 for a 750ml bottle of Bling H2O — which at least comes in limited edition bottles with hand-applied Swarovski crystal. So, 1,000 litres of water from the tap would cost you around £1 rising to £80 for the equivalent amount of Tesco Value water and £62,500 for Bling h2o drinkers. The retail mark-up can be anything from 50% around 2000% depending on the product you buy and where you buy it from.

Manufacturers, who spend around 90% of the total cost of producing bottled water on packaging, transporting and marketing bottled water, still enjoy average profit margins of around 30%. However, Coca-Cola took its quest for profits a step too far in 2004 after it emerged its highly marketed Dasani product was little more than treated mains water from Thames Water in Sidcup.

Half a litre cost of this “purified” water cost around 95p during the five weeks it was on shop shelves before it was discontinued in the UK following a contamination scare. In contrast, half a litre of tap water sets you back just 0.05p, giving Dasani a mark up of around 2,000%. Then there’s the irony that it actually takes around three litres of water to produce a one litre bottle.

If tap water’s not to your taste, an under-the-sink water filter is a much cheaper and more environmentally friendly alternative to buying bottled. Carbon filters get rid of bad taste and smell while water softener filters remove the heavy minerals responsible for limescale build-up.

[See alsoIs water a better earner than gold?]

Coffee — 1,250% mark up

Your daily caffeine fix from your local coffee shop is an increasingly pricey luxury. It’s no surprise that the actual cost of producing the drink is minimal compared to the £2.50 price tag. Baristas get around 140 espresso shots out of a 1kg bag of coffee which can be bought for around £10 – making the cost of each shot around 7p.

The milk to make lattes or cappuccinos usually works out to cost around 10p with take out cups and sugar bringing the cost to around 20p. A whopping 1,250% mark up on the cost price.

However, this huge profit margin is quickly gobbled up by staffing costs, rent, and other operating costs such as custom charges. Bulk coffee prices have also risen to top $3 a pound for the first time in 34 years with high-quality beans Arabica beans from Colombia and Central America suffering from two seasons of poor harvests.

The sugar, cocoa and dairy markets have also been volatile. Meanwhile the rising popularity of coffee in China, Brazil and India has stretched supplies.

Fortunately for coffee drinkers the fluctuating price of coffee accounts for around 2% of the total cost but this hasn’t stopped some retailers from raising their prices. In the US, Starbucks started charging more for ‘labour intensive’ drinks at the end of last year.

While the price of coffee in supermarkets has risen in response to the tougher market conditions, it can still work out significantly cheaper to invest in a good quality coffee machine or cafetiere and a thermos flask. Switching to tea may be a more wallet friendly alternative but the mark-ups are just as bad with tea bags costing less than 1p each at wholesale prices.

Clothes — up to 700% mark up

High street retailers specialising in fast fashion go for the low profit margin/high volume approach to keep up with the voracious appetite of the clothing conscious bargain hunters.

Most mark-up their clothing lines by around 50% with lower gross margins of between 10% and 30% on basic tops rising to around 70% for jewellery. Smaller boutiques and the top end of the high street have a higher mark-up because they sell fewer items with shoppers willing to pay more for better cut pieces, better quality fabrics and fewer pieces in circulation.

Recent reports suggest that the £175 Reiss dress that Kate Middleton wore to meet President Obama actually cost £15 to manufacture.

Stitching a well known brand name onto a generic item of clothing is an easy way to inflate its value by as much as 500% – think T-shirts, sports wear and shirts. The $54 billion global denim industry is also notorious for huge mark-ups of as much as 300% with shoppers prepared to spend big for the perfect fit.

Replica football shirts are a big moneyspinner with 80% of those sold in the UK made in the Far East for around £5. The factory then sends them onto the sportswear companies at around a 50% mark-up. They in turn mark them up by another 100% and sell them onto the retailers for around £14. The retailers add their own mark-up of at least 150% to bring the price tag up to the recommended retail price of at least £35. That’s 700% more than the manufacture cost.

Shirt manufacturers have hit the headlines in the past for restricting supplies to a few selected sports chains to keep prices high. Supermarket chain Asda clashed with sportswear group Umbro after it wanted to sell England shirts for half the recommended retail price and was forced to source its stock from middlemen in Europe.

Glasses — 400% mark up

We spend a small fortune on getting the right glasses but only a tiny proportion of this actually pays for the lenses and frames. More than 32 million people in the UK wear glasses and the majority of these — around 21 million — buy their optical goods from where they have their eye examination despite being under no obligation to do so, according to Mintel.

High street giants such as Boots, Dolland & Aitchison, Specsavers and Vision Express can therefore get away with charging mark-ups of at least 400% even on their budget ranges to help cover the costs of expensive equipment for eye tests, high profile advertising campaigns and high rents. Standard lenses and frames can cost as little as £4 to make, rising to around £7 for those with more complex prescriptions.

In recent years  internet retailers have burst onto the scene with the likes of glassdirect.co.uk, best4glasses.co.uk and glasses2you.co.uk all passing on the savings of much lower overheads directly to consumers with straightforward prescriptions. Selectspecs even has a recession busting range of glasses from £5 including free scratch-resistant, full UV-protection and anti-reflection treatment. The internet is also the best place to shop around for accessories such as clip-ons and cases.

Furniture — 400% mark up (before the sales)

Even in the never-ending stream of furniture sales we still usually end up paying at least double the wholesale cost. Retailers buying in bulk have a certain amount of purchasing power but they also have substantial costs to pay including warehouse inventory and a showroom, wages and commission for their staff not to mention all the television and newspaper adverts.

The trick to staying profitable while making it seem like your customers are getting a bargain is all in the sales strategy. Retailers are skilled at marking up their wares by at least 400% on the price they paid and putting these ‘full price’ goods at the back of the store.

After 28 days these can legally be heavily discounted by as much as 50% the first time round with further reductions of another 50% in the following weeks. This gives the impression that it’s an amazing bargain but in reality the retailer still sells the product at a 100% mark-up on the wholesale costs.

[See alsoThe things that are always on sale]

Jewellery — 300% mark up

Quality usually comes at a price — and to the uneducated jewellery buyer, the bigger the price tag the greater the piece’s perceived value. In fact, the mark-up on all that glitters can be anywhere between 100% and 1,000% depending on where you buy and how good your negotiating skills are.

However, the standard increase is 300%, known in the business as a triple key mark-up. As jewellers sell only a small number of items they need a decent profit just to stay in business. Overhead costs such as rent, security, holding inventory and staff wages are expensive and many also spend a sizeable amount of cash on advertising.

Specialist online retailers have significantly lower overheads and can offer much cheaper prices for comparable products than high street stores. It could also be worth browsing the UK’s jewellery quarters such as Hatton Garden in London or the Birmingham Jewellery Quarter. As a general rule of thumb, a good haggler should be able to get around 20% off the price.

If you’re buying diamonds or other precious stones than always make sure they are properly certified in case you have to sell them in the future. Self-certified certificates from the retailer can be useless so make sure it has been issued by a reputable independent laboratory such as the Hoge Raad voor Diamant or the Gemmological Institute of America.

 

91 comments

  • kerry
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    Kerry 3 minutes ago Report Abuse

    I’m surprised popcorn isn’t on that list. I buy popping corn, even at sainsbury’s it only 51p, and it makes loads, and it’s fun to make. I don’t understand how they can charge so much for it.

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  • highland girl
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    Highland Girl 3 minutes ago Report Abuse

    I wanted to add that I think a lot of people are lazy and pay more for the frozen or pre-packed food rather they cook it fresh for thermselves

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  • Jimross
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    Jimross 3 minutes ago Report Abuse

    None of this is a surprise. Supermarkets have been robbing their customers for years. The worst is Tesco where you will find buying the big family pack actually works out more expensive than smaller packets. We have brought this all on ourselves because the British public is too lazy to do anything . Why would anyone buy a packet of washed and sliced carrots at twice the price of loose carrots that have no taste whatsoever,and any goodness has evaporated. The reason for this is we are bone idle to do anything for ourselves. The Great Lazy British Public.

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  • A Yahoo! user
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    A Yahoo! User 4 minutes ago Report Abuse

    I worked for a cinema where the cost price for water was 12.5 p and the cinema sold it for a pound. all the other stuff had reasonable mark ups. I think they choose a pound because the cool drink like coke which cost price was much higher also sold for a pound and water was their best seller

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  • highland girl
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    Highland Girl 4 minutes ago Report Abuse

    I live on an Island so everything from food to our oil for heating has to come by ferry and for that we have to pay an “Island Tax” to cover the costs, so we have no choice
    When I lived in London I always went to the markets near closing time to buy my fruit and veg and they almost gave it away.
    likewise chicken is cheap and pasta and with imagination you can come up with good meals

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  • Hesperus
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    Hesperus 5 minutes ago Report Abuse

    How about why?
    A lot of these huge mark-ups are to compensate for items that are not really worth stocking when one takes into account overheads.
    Cigarettes for instance gross about 4% which doesn’t cover the cost of selling them.

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  • A and A
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    A And A 6 minutes ago Report Abuse

    for glasses and dentures go to your local technician (optical or dental) and have them made for you for a fraction of the price that the optician or dentist will charge (guess where they get them made – same place!) BUT don’t go to a High Street business such as v*s**n*xpr*ss – their staff are under instruction to get the new specs out in an hour whether they are correct or not.

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  • JON
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    JON 6 minutes ago Report Abuse

    Many people are obsessed with having something better than other folk, so they are willing to pay through the nose. It really is pathetic !
    If that’s where their level of intelligence takes them – then they deserve to be ripped off !

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  • David
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    David 8 minutes ago Report Abuse

    What about computer printer ink cartridges? They’ve got to be the biggest con going!!

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  • bunchie
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    Bunchie 9 minutes ago Report Abuse

    Doesn’t surprise me at all. I do most of the weekly shopping at Morrisons and I have noticed that while they are advertising that they are ‘crunching’ 1,000s of prices, they are raising many others. Example: Drench water, shot up from 99p to 1.29p. Morrisons value baby wipes up from 17p to 35p. and many more. Their markup becomes obvious when you compare the prices in B & M Bargains and Home Bargains with those in Morrisons. Sadly, they don’t sell everything we need though. Here are things I NEVER buy in Morrisons: tea, coffee, sugar, biscuits, eggs, bleach, washing up liquid, washing machine soap, fabric softener, tinned tuna and tinned salmon, sandwich paste, olive oil, cooking oil and other items that I can find for a fraction of the price elsewhere.

    Reply

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