Increasing sales is only half the answer! Sales bring in the cash to run your store. So, improving sales is always important.
But too many retailers forget about turnover. If sales are to pay the bills, the bills must be appropriate for your sales in order that sales cover vendor invoices, overhead and profits. Without this focus on turnover, retailers will overbuy. Overbuying will be marginally helpful to improving sales, but will be a major inhibitor to being able to pay all of your obligations and make a profit.
So, let’s do a little math. Let’s say sales are 100% and you work on a “keystone” (50%) markup, so half of your sales will go to pay your vendors. Your overhead (rent, utilities, labor, advertising, etc.) will consume another 40% leaving 10% for your profit. That works out great if you only buy what you sell and don’t take any markdowns. If you buy more than you can sell, sales will not generate enough to pay your vendors. If you markdown merchandise to raise cash, you are effectively eliminating the contribution to overhead and certainly profit.
So, not only do you have to plan sales, you have to plan properly so the merchandise turns over at the appropriate rate. The answer is to add turnover to your planning. Too many retailers ignore turnover because they really don’t understand the concept, but as important as it is, it’s not that difficult. Turnover is the rate at which you deplete your inventory on an annual basis.
In the clothing business, you have four or five (cruise) seasons each year. The merchandise for summer is not appropriate in fall or winter, etc. so it is important to be out of summer merchandise as you approach fall. So, you should be thinking about four or five turns each year for your planning. If you include turnover as a part of your buying plan, you will keep your sales on target, but more importantly, be able to meet your payables and take your profit every month.
The way to work both sales and turnover into your buying plan is “open to buy” planning. There are software and services available to help you come up with your plan, but the most cost effective, comprehensive, accessible system is myotbplan.com. Because we’re web based, you can access your plan at any time from any computer, tablet or smartphone. And there’s no risk to use myotbplan.com because we guarantee that your inventory will be leaner, better balanced, and faster turning, with your markdowns reduced and your cash flow improved or we’ll give you your payments back. And we support our system 10 hours every day so when you call with questions, you’ll get information about your data from someone who knows the answers.