Are markups disappearing?
Photo posted to Business of Home
Original article posted at Business of Home By Fred Nicolaus
An investigation into the design industry’s tortured relationship with product markups and whether they can withstand the age of the internet.
There’s this thing—call it a theory, a rumor, an urban legend—that everyone in the interior design world is familiar with. It goes something like this: “As the industry gets more and more transparent, clients won’t tolerate product markups anymore, and future generations of designers will charge only for their time.” Cue heated debate.
I’ve been hearing some version of this for more than a decade. I’ve heard it from designers who were terrified it was going to happen soon, and from those who wished it would come quickly. I’ve heard it as idle chatter from experts on panels, as quiet speculation from CEOs in off-the-record conversations, and as a confident prediction from entrepreneurs and would-be disruptors. Is it true?
Markups on product are as old as the design profession itself. So are clients complaining about them. Elsie de Wolfe, arguably the first modern interior designer, suffered from the scrutiny of her most famous client, Henry Clay Frick, who once wrote her a stern note warning her against double-dipping.
“You undertake not to accept directly or indirectly … remuneration of any kind, other than your fee from me, and will use all your knowledge and means to purchase to my advantage, both artistically and financially, any and all purchases to have my approval in writing.” Friendly stuff!
Frick’s tone is old-fashioned, but the sentiment will be familiar to today’s designers. Markups have always been a sensitive spot in the design world. Even the most confident of designers—titans of the industry—will hesitate ever so slightly when explaining exactly how much they add on to the price of a pillow before handing the invoice to the client.
To be crystal clear, there’s absolutely nothing wrong with markups. Vast swaths of the global economy run on markups, and we take most of them for granted. No one walks into a grocery store and indignantly asks the manager what the wholesale price for a gallon of milk is. In fact, some version of that analogy is often used by designers to shut down clients who poke and prod at the idea of markups.
But just because markups are fair doesn’t mean that clients don’t question them. In some respects, their wariness can be forgiven. After all, if I go into a grocery store and see that a gallon of milk costs $20, I can easily walk to the next store and compare prices.
The same can’t really be said for high-end furnishings, where pricing is opaque, complex and contingent on who’s doing the buying. When clients can’t compare apples to apples, they get suspicious about the price of apples.
The other big factor that complicates markups is more emotional than economic. It may seem unfair that retailers can double wholesale prices unchallenged while a designer has to justify every single dollar of their markup, but the truth is that designers and their clients don’t have a retail relationship—residential projects are built on an intimacy and trust that goes much, much deeper.
No one is angry when their grocery store puts the expensive milk out front. But what if your psychiatrist earned a commission on the medication they prescribed? That paradox (“You have to trust me! Also, I make more when you spend more”) is a perennial powder keg of the industry.