Everyone talks about turnover, but do you really understand what it is and how important it is? Well, a simple definition is that “turnover is the rate at which you deplete your inventory during the year”. What that means in static terms is that if you had a full store of merchandise on January 1st and sold it out totally by March 31st and then magically refilled your store on April 1st and did the same again another two times ending with an empty store on December 31st, you would have turned your inventory four (4) times.
Of course, that won’t happen because of the magic thing and also because as you deplete your inventory your sales would fall off. Consequently, you want to have a constant flow of merchandise into and out of your store. And even though you think of turning over your merchandise, what you are really doing is turning over your invested dollars so you can pay your vendors, contribute to overhead and make a profit. Your job as a retailer is to try to constantly improve your turnover so you can make more money.
The only way to do that is with open to buy planning because just as your store is driven by sales and turnover, so is open to buy planning. But sadly, many retailers think that the regimen of open to buy planning will limit their creativity. Actually, OTB will only force you to be more creative because you will be working with a defined budget. So rather than just buying anything and everything, you will become a better item selector and be left with far fewer markdowns and a bigger profit.
So, how’s your turnover? As an easy calculation, take your annual sales in retail dollars and divide it by your current retail dollar inventory. That’s not absolutely accurate, but close enough to let you know how you’re doing. A turn of 2 or less will make it difficult to make money. Most small retailers should be working with a 3 or even a 4 time turn. The higher your turn, the lower your inventory. Every time it turns, it covers the cost of the merchandise, contributes to overhead, and gives you a profit.
Want to raise your turnover? Use open to buy! If you use myotbplan.com and you’ll wonder why you waited this long. It’s easy, accurate, affordable, accessible, supported 10/7, has no contract and is guaranteed to improve your inventory position, cash flow and, you guessed it, your turnover! What are you waiting for?