Turnover is the key to making money in retailing. It’s also the key (along with your sales projections) that your OPEN TO BUY will use to develop your buying plan. TURNOVER is the rate at which you deplete your inventory and is always considered in annual terms. If you divide your turnover into 12 (months) it will indicate the number of months of sales that you need in stock. So, if your planned turnover is 4, your inventory amount would represent 3 months sales. (12 ÷ 4 = 3) This is also sometimes referred to as the stock to sales ratio. As the turn rate moves up, the inventory carried to support sales at that rate goes down and your MARKDOWNS are reduced and your cash flow improved. So, the more you turn, the more you make.
Your store is driven by sales and turnover and so is an open to buy plan. Turnover is a product of 1) how long it takes to get the goods, 2) how much you need to be properly represented, and 3) how long you want it sitting in stock. If you are an established retailer, you can determine your current annual turnover by dividing your annual sales by your current inventory. That will give you a close approximation of your turnover. An annual turn of 2 or below means you will struggle to pay your bills. 3 – 4 puts you in a good working range and from there, your open to buy plan will allow you to gradually raise your turn rates until your inventory gets too lean and you start missing sales, but don’t worry about that since it is a rarity that a retailer gets into that zone. So your open to buy will guide you to make the maximum sales with the minimum inventory and that’s how you make money in retail.
The information in this and the following blog posts will help you on your way to an OTB plan and we are always available to answer your questions. The truth is that it is dramatically more cost and time efficient to subscribe to myotbplan.com. But whatever gets you using open to buy, we want to help.
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