A retailer’s guide to margins

For coastal retailers, sales often come in waves. That’s exactly why gross margin matters more than most store owners realize. Gross margin is the percentage of each sale that stays in your business after inventory is paid for.

Your gross margin determines how much of your peak season revenue actually supports you during the off-season. If your store runs at 50% gross margin, every $100 sale leaves $50 to cover payroll, rent, marketing and profit. If that number slips, it becomes harder to sustain the business when tourist traffic dips.

Improving gross margin

The fastest way to improve gross margin is through initial markup (IMU), which is the way you price inventory when it first hits the floor. At RETAILMavens, we recommend all our clients aim for an average 65% IMU, and I will suggest you do the same.

"When margin is built correctly, busy seasons become profitable seasons."

Smart retailers manage the average IMU across the entire store, intentionally balancing items they can price higher with items that have tighter margins.

Putting it into practice

Let’s consider two seaside stores, each doing $400,000 annually, with similar markdown habits. Store A averages a 55% IMU and can maintain a 43% gross margin. Store B averages a 65% IMU and can maintain margins closer to 50%.

For every $100 in sales, Store A keeps $43 to run her business, while Store B keeps $50. That’s $7 more per $100, without selling a single additional item. That extra margin offers peace of mind in the off-season.

High-margin items

Tourist-driven stores have a unique advantage in offering high-margin impulse items. Souvenirs are great for 3x-4x cost pricing, creating IMUs of 66-75%. These products protect your margin even with markdowns.