This is a question we’ve all heard many times, but how do you answer? Do you respond about sales? Do you respond about traffic? Do you respond about your bottom line?

The most obvious response would be about sales. It’s pretty easy (and accurate) to say business is good if sales are up. Increased sales are always a goal for every retailer. When sales are up, you want to brag. But are increased sales really an indicator of the health of your business?

You could talk about the last trade show you went to and the incredible merchandise you saw and ordered. And how when this merchandise arrives, your sales will skyrocket.

You could talk about your promotional efforts and how they’re bringing in more traffic. A full store is a happy store. More traffic generally means more sales and that’s all good.

You could talk about your new employees and how they’re motivated and taking much of the burden of running the store and the sales floor off of your shoulders. Great employees are every retailer’s dream come true. Without them we’re in big trouble.

You could talk about the new line of credit from the bank that will enable you to buy even more inventory to drive more sales from your new promotional effort.

So, here are a few questions that you might ask yourself before you answer the first question out loud. If your sales were up, what was driving that increase? Was it promotion? Display? Sales personnel? More money in the community? Better weather? Of course, if sales were down, you need to visit these questions as well.

Once you get beyond sales, you need to consider your bottom line, which is driven by turnover, which is driven by your buying, which is driven by open to buy. Even if your sales are up, if your inventory is growing faster than your sales, your turnover will be down and so will your cash flow, making it hard to pay the bills and impossible to show a profit.

One thing that’s true about retailers is that they love to buy. If it looks good in the showroom, it’ll look good in the store and generate sales. More is probably better. And before you know it, you’re in trouble. And it doesn’t have to be that way if you follow an open to buy plan. If you don’t have one, is the way to go. It’s easy, accurate, inexpensive, accessible, supported, and guaranteed. It’s the one merchandising tool every retailer should be using if they want to smile when they answer the question . . .

So, how’s your business?

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