Every business needs money to function. You need to promote, continually upgrade your displays, motivate, reward, and upgrade your personnel and even upgrade the environment in your store. Everything takes money.
What most retailers don’t understand is that if they set up their stores properly when they opened, the money invested in inventory will carry the store forward and provide all the working capital they need. But, most retailers don’t start off with a solid buying plan. They lease a store that may be too large for their anticipated sales because it was available. And they may have agreed to a rental figure that was higher than desirable.
Then they go to market and fill the store with all of the great merchandise they can find. And they do that buying without a plan. More often than not, they buy much more than they will sell. Now come the problems. As the merchandise sits and depreciates, the bills come due and cash is short, so more capital must be added. Markdowns are almost always a part of the mix and that creates more shortfalls.
This could have been avoided with an open to buy plan established before the lease was signed. Being based on anticipated sales and desired turnover rates, an open to buy plan will establish the correct amount of merchandise that a retailer needs to open a store. It will also aid in determining the ideal size of the store. It will also help to plan the interior layout of the store. The advantages are enormous.
The most important advantage is that opening with the correct amount of inventory will allow a retailer to pay the invoices, pay the overhead and pay themselves without the addition of more personal funds and without taking profit killing markdowns. In addition, there will be enough income to use for promotions and the other expenditures needed to grow your business.
It’s never to late to get underway with open to buy planning. Once you do, you’ll see where your current inventory and your future orders are out of balance and be able to take steps to correct those situations. Once you bring things into line, it will be clear sailing.
With open to buy planning, you will have an ideal inventory to drive your sales and money in the bank to drive your growth.