Initial markup (IMU)

Initial markup, often abbreviated IMU, is the markup percentage applied to cost to set the first selling price of an item, before any later markdowns, promotions, or clearance activity change that price. It's the starting point retailers use for financial planning at the buying and merchandise planning stage.

How initial markup works

Initial markup is calculated as (initial retail price minus cost) divided by initial retail price. Retailers set an IMU target for a category based on the markdowns, shrinkage, and operating costs they expect to absorb over the life of the product, so the initial price has enough cushion to still deliver an acceptable final, or 'maintained,' margin after those reductions. A category with heavy expected markdown activity needs a higher initial markup than one that sells through mostly at full price.

Merchandise planners typically set IMU targets by category during pre-season buying, using the prior year's actual markdown rate and sell-through pattern as a guide. A category that historically clears 30 percent of units through markdown needs a noticeably higher initial markup than one that sells through almost entirely at full price, even if both categories share the same maintained margin goal. New categories without a prior year to reference are usually planned against a comparable category or a conservative, higher-than-average markdown assumption until real sell-through data is available.

Example

A footwear retailer buys a shoe for $28 and sets an initial markup of 60 percent, pricing it at $70. Planning assumes 25 percent of units will eventually be marked down to clear end-of-season stock at an average of $49. Blending full-price and marked-down sales, the retailer's maintained margin comes out around 48 percent, comfortably above the 42 percent target set at the planning stage. If markdown activity ends up running heavier than planned, say 35 percent of units instead of 25 percent, maintained margin would fall closer to 44 percent, still above target but with much less cushion.

Why it matters for retailers

Setting initial markup too low leaves no room to run markdowns without falling below target margin; setting it too high can make items look overpriced relative to competitors, hurting sell-through and forcing deeper markdowns later. Getting initial markup right at the planning stage is what makes maintained margin targets realistic.

Because initial markup is set months before a season's actual sell-through is known, it's inherently a forecast, and retailers that never revisit it against real markdown activity risk repeating the same planning mistakes season after season. Comparing planned IMU against actual maintained margin, category by category, is one of the simplest checks a retailer can run to see whether its buying and pricing assumptions are still realistic.

How Retailgrid helps

Retailgrid connects initial markup planning inside price optimization to actual sell-through and markdown performance in the AI workspace, so category managers can see early whether a category is tracking toward its maintained margin target or needs a pricing adjustment. Rather than waiting until end of season to learn that markdown activity ran heavier than planned, teams get a running view of maintained margin against target throughout the selling period, in time to still act on it.