Working for Mel's, a mid-sized department store chain, Elise Wickstrom recently was promoted to department manager of the Children's Department. Elise was excited about the opportunity but knew it would be a challenge because this department was not just apparel, but included toys and shoes, each having very different sales plans and margins. She was eager to show management that she was the right person for the job! History: Mel's Department Stores had struggled under previous management as the proliferation of larger chains continued. This really hurt Mel's business because these larger conglomerates had increased buying power with vendors, allowing them to constantly under price Mel's. The Internet also played a role in Mel's deteriorating business. The ability for the consumer to easily compare prices as well as the convenience of shopping 24/7, were hard for Mel's to match. Mel's then began to cut prices to stay competitive. Margins eroded, and business sales did not increase. New management recently took over, giving Mel's a makeover. The lighting and layout for each store was improved. The outer faade of locations was painted and updated. With these improvements and fresh thinking, the chain also changed its assortment, including fresher looks and more unique goods. In addition, they re-trained the entire workforce and now not only encourage a high level of customer service, but also give bonuses for such behavior. Mel's hope is that these changes will decrease price pressures and allow it to increase its maintained markup percentages. CHILDREN'S DEPARTMENT Under this new plan, Elise has been asked to adhere to the following initial and maintained markup percentages described in the following table: Elise just received her first shipment from FUNWEAR, her largest girls' vendor of unique jeans for kids. Its hand-painted designs and jeweled enhancements were adorable and were a real traffic driver in the department. This vendor pre-marks all items for Mel's, allowing Elise to get them from receipt to selling floor quickly. Elise wanted to ensure that the tags were correct. Here is how the invoice read: To determine Elise's maintained markup percentage for the FUNWEAR prewashed jeans and if it met her goals, we need to calculate the average markup percentage for all the units sold. Total sales revenue =(50$30.50)+(40$30.5075%)+(110$30.5050%) Total cost =(50$16.00)+(40$18.38)+(110$23.63) Total markup = Total sales revenue - Total cost Total markup =$5,670.50$3,287.00=$2,383.50 Average markup percentage = Total markup / Total cost Average markup percentage =$2,383.50/$3,287.00=72.57% The maintained markup percentage for the FUNWEAR prewashed jeans is 72.57%, which is higher than the 60% maintained markup target for soft goods. This indicates that Elise was able to maintain a higher markup percentage than her target, likely due to the popularity of the hand-painted and jeweled designs of the jeans. 5. Using the information in question 4, explain to management some of the many possible reasons that multiple markdowns would have been taken, and discuss why we always compare to plan. 6. FUNWEAR is a long-time vendor of Mel's. It provides markdown dollars to help defray the lost gross margin dollars. Why would it provide this money to Elise? 7. Seventy-five toy trains were bought for the toy area at $3.25 each and were then priced at $10.00 each. Elise is running a department promotion and wants to reduce the price of the trains. What is the lowest she can reduce the retail price to and still meet her maintained markup goals? 8. Mel's wanted to create unique assortments and increase customer service. How does this strategy allow for better markup percentages? Explain how are these related to perceived value? Working for Mel's, a mid-sized department store chain, Elise Wickstrom recently was promoted to department manager of the Children's Department. Elise was excited about the opportunity but knew it would be a challenge because this department was not just apparel, but included toys and shoes, each having very different sales plans and margins. She was eager to show management that she was the right person for the job! History: Mel's Department Stores had struggled under previous management as the proliferation of larger chains continued. This really hurt Mel's business because these larger conglomerates had increased buying power with vendors, allowing them to constantly under price Mel's. The Internet also played a role in Mel's deteriorating business. The ability for the consumer to easily compare prices as well as the convenience of shopping 24/7, were hard for Mel's to match. Mel's then began to cut prices to stay competitive. Margins eroded, and business sales did not increase. New management recently took over, giving Mel's a makeover. The lighting and layout for each store was improved. The outer faade of locations was painted and updated. With these improvements and fresh thinking, the chain also changed its assortment, including fresher looks and more unique goods. In addition, they re-trained the entire workforce and now not only encourage a high level of customer service, but also give bonuses for such behavior. Mel's hope is that these changes will decrease price pressures and allow it to increase its maintained markup percentages. CHILDREN'S DEPARTMENT Under this new plan, Elise has been asked to adhere to the following initial and maintained markup percentages described in the following table: Elise just received her first shipment from FUNWEAR, her largest girls' vendor of unique jeans for kids. Its hand-painted designs and jeweled enhancements were adorable and were a real traffic driver in the department. This vendor pre-marks all items for Mel's, allowing Elise to get them from receipt to selling floor quickly. Elise wanted to ensure that the tags were correct. Here is how the invoice read: To determine Elise's maintained markup percentage for the FUNWEAR prewashed jeans and if it met her goals, we need to calculate the average markup percentage for all the units sold. Total sales revenue =(50$30.50)+(40$30.5075%)+(110$30.5050%) Total cost =(50$16.00)+(40$18.38)+(110$23.63) Total markup = Total sales revenue - Total cost Total markup =$5,670.50$3,287.00=$2,383.50 Average markup percentage = Total markup / Total cost Average markup percentage =$2,383.50/$3,287.00=72.57% The maintained markup percentage for the FUNWEAR prewashed jeans is 72.57%, which is higher than the 60% maintained markup target for soft goods. This indicates that Elise was able to maintain a higher markup percentage than her target, likely due to the popularity of the hand-painted and jeweled designs of the jeans. 5. Using the information in question 4, explain to management some of the many possible reasons that multiple markdowns would have been taken, and discuss why we always compare to plan. 6. FUNWEAR is a long-time vendor of Mel's. It provides markdown dollars to help defray the lost gross margin dollars. Why would it provide this money to Elise? 7. Seventy-five toy trains were bought for the toy area at $3.25 each and were then priced at $10.00 each. Elise is running a department promotion and wants to reduce the price of the trains. What is the lowest she can reduce the retail price to and still meet her maintained markup goals? 8. Mel's wanted to create unique assortments and increase customer service. How does this strategy allow for better markup percentages? Explain how are these related to perceived value