Retailers know all about their customers – their tastes and their needs. They know how to select the best items to satisfy their customers’ needs. They know how to set their stores up to most effectively display and sell this merchandise.
They know how to train and motivate their personnel and build enthusiasm about the merchandise and mating it with the customers. Retailers know how to encourage their customers to come into their stores through advertising and other forms of promotion.
So, what’s the problem? The majority of retailers are still guessing about the quantities of merchandise that they need to buy, because they really don’t know how much they should buy. Buying is a bit of a power trip and the reps foster that feeling. The buyer is king (or queen) and reps encourage them to buy more so they can sell more. They encourage them through “friendship” and through fear – buy it now or you’ll miss out. They use all means to encourage retailers to buy more. And the retailers do.
Every store has the ability to generate a finite amount of sales. Location, advertising, physical space, etc. will pretty much determine what the sales volume will be. Of course, you want it to grow and it will as you refine your promotions, item selections, displays, personnel, etc.
Because retailers are guessing about the quantities and erring on the side of over buying, they are constantly creating bloated inventories and, of course, excess invoices. To pay the overhead and the merchandise bills, which are higher than what can be paid for from regular sales, merchandise is marked down so it sells faster to generate more cash. This negative situation that continues to perpetuate itself and is responsible for a great number of retail failures.
So, stop guessing! Easier said than done? Not really. When orders are placed after open to buy planning has been done, a retailer knows how much to buy – in each merchandise department, each month 12 months into the future. Armed with open to buy information, retailers know when to buy and when to say no. With open to buy, any retailer can break the negative cash flow spiral caused by over buying and markdowns.