It’s staggering, the number of retailers that plan their merchandise by the “seat of their pants”. They use their “gut” feeling when doing their buying. If it looks good and they really think their customers will like it, they buy it. Sometimes they back up the orders since the reps have assured them that if they didn’t, they wouldn’t be able to get more when they sold the first load.
So as they work their way through trade shows, there’s a bit of fear present in their orders. No one likes missing a sales, so they place larger orders. It’s all going to sell, right?
Some myths don’t become reality and while retailers love to buy, selling is much harder on the psyche and also the purse. All that merchandise must be paid for and if it doesn’t sell, where’s the money going to come from. Markdowns? Bank loans? Personal funds?
Retailers need to do more planning. Sales cannot be based on inventory. Inventory must be based on sales. Inventory is there to support sales, not to drive them. Until retailers understand this distinction, they will continue to overbuy. Overbuying leads to negative cash flow which leads to markdowns and losses. There is only one way to properly plan and control buying and that is open to buy planning.
The two forces driving your store are sales and turnover. While every retailer is trying to increase sales, raising turnover is the key to making money. Open to buy planning is driven by these same two forces – sales and turnover. Building a buying plan with open to buy planning will insure that you have the correct amount of inventory in stock on the first of each month to support the sales you expect at the turn rates you want to achieve. Fresher, faster turning inventory will result in a positive cash flow.
Establishing a buying budget with open to buy planning is the only way to keep your sales growing, pay your bills and make money. Anything else is just guessing and we all know what that brings.
