Dumb question, eh? Well, maybe not so dumb. Retailers, on the whole, tend to forget about making money until they start running out of money. In the meantime, their thoughts are consumed with all the other areas: products, advertising, employees, facility maintenance, displays, trade shows, deliveries, and on and on. In truth there’s probably too much for retailers to think about, but that’s the nature of the business you own/manage.
Now all of those other areas that consume our thoughts are areas that can help or hurt the process of making money. Many are creative endeavors – product selection, displays, store décor, advertising, etc. – and some are just fixed expenses – rent, labor costs, utilities, etc.
Of course, as retailers, we’re always looking for the best prices possible whether it’s on the merchandise for the store, keeping wages down, getting a better deal on promotion, etc. One thing retailers do well is to watch the pennies. And that’s important, but it isn’t how you make money in retail.
When retailers fail, it’s not because they have unattractive stores. It’s not because they bought the wrong items or handled their customers and their promotion poorly. It always comes down to having more invoices to pay than cash coming in. Even with strong sales, retailers can get themselves into trouble by buying by the “seat of their pants”. What that means is that they don’t have a formal buying plan based on anticipated sales and desired turnover.
OK, let’s look at each of these two elements. Turnover, first and foremost, is what makes the difference between success and failure in retail. Turnover is the gauge of retail efficiency. The higher your turnover, the better job you’re doing. If your turnover is low, it means you are building up inventory that is not wanted, not selling, and will soon become markdowns. Markdown sales are not profitable! They provide neither a contribution to overhead or profits. Without bringing in sufficient contributions to overhead, your bills can not be paid and your doors cannot stay open. Markdowns don’t work.
Sales are, of course, important and every retailer is anxious for sales growth. Too many retailers feel that more inventory will bring more sales, but that won’t happen. Your sales are a product of your promotion, your location, your environment, your displays, and your staff. Having more inventory than you need to meet your sales will only result in excess invoices and excess inventory that will be marked down. The trick is to have the right amount of inventory in the right departments at the right time to support your anticipated sales at the turn rates you want to achieve. OK, that sounds easy enough, how can we do that?
The answer is open to buy planning (just as you knew it would be because you’re reading this from an open to buy site). But it is the correct answer and it is actually the only answer. No one can do this in their head and get it right. I know, I tried for several years before I developed my open to buy plan. Anything that’s not a formalized open to buy plan is just guessing and guessing never works.
Open to buy is based on the two elements we just discussed – sales and turnover. Using these two elements, along with current inventory figures, forecasted beginning inventory figures and a bunch of critical adjustments, an open to buy plan can be developed. There are many systems and services available, but we feel that myotbplan.com is not only the best system, but the best value. You are encouraged to move from the “seat of your pants” or some other concocted plan that makes you feel you’re buying right, to a real open to buy plan based on sales and turnover.
If you can find an open to buy system that’s better than myotbplan.com, we encourage you to use it, but if you really want to start making money in your store and insure your future success, you’ll call us and get underway with myotbplan.com.