There’s a very simple answer to this very complex question. And here it is:
T O M A K E M O N E Y !
Retailers have so many reasons for doing what they do and most of them sound good, but don’t really matter in the scheme of things. Of course you love to do displays, take care of the customers, make your store as attractive as possible, and (here’s the big one) buying. Lord knows, we love to buy.
And the reps are more than happy to accommodate this addiction. In fact, they push us to buy more with deals, discounts, and dating. And so, we buy more, and more, and more. And we love every moment of the buying and every item we envision in our store. We know our sales personnel will love it too and the customers, well, they are going to be thrilled.
But here’s the problem, how do you know how much to buy? You know your customers and your store and can pick great items, but too much of a good thing is a bad thing. Without a plan — an open to buy plan — you are headed for excess invoices, markdowns and a negative cash flow. When that happens, the thrills you experienced while ordering the great items is gone and you are faced with nothing but problems.
So, you need a plan before you begin your buying. Actually, you should have an open to buy plan before your open your store to insure that your initial inventory is correct and avoid the traditional opening problem of overbuying. An open to buy plan is based on your anticipated sales and your desired turn rates, the two elements that drive your store. You realize how important sales are, but you bottom line is determined by how well you turn over your invested capital. Only with open to buy planning can you control your turnover and insure a positive cash flow.
Your retail success is predicated on your buying. While the items are important to bring in the customers, the quantities are even more important to bring in the profits. If you want to make money as a retailer, you need open to buy planning.