I know you are probably grateful to have survived the long slow months of the first quarter of the year, but to what degree have you survived? Do you have money in the bank or are you wondering where your next dime will come from? If you ask around, people will tell you things are picking up and sales are improving. Will this improvement mean you will be getting ahead or will it simply allow you to keep from going under? As a retail business owner, what can you do to sleep better at night and not worry about every little hick-up in the economy?
Open-to-buy planning allows you the ability to look ahead into the future and see what your sales will be and what your merchandise needs will be throughout the year. Okay, I can hear you saying this now, “Sure you can, there is no way you can predict what is going to happen, especially in this economy. I don’t need to know this nonsense, I need more customers walking through my door.” By now you must be wondering what secret wizardry is used to produce this impossible feat.
You will be surprised to find out it really is not secret wizardry, and you might also be shocked to find out you just might not need all those extra customers to walk through the door either. Now don’t get me wrong, extra customers are good and they will help you increase your sales, but you can still put more money in the bank without them, and this is how it works. First of all, without even going in your store I am assuming you probably have too much inventory because more retailers do, and sadly, they don’t realize it. Idle inventory sitting on your shelves could be money in the bank, but instead it will become excessive markdowns which result in less profit for your business. There is an optimum amount of inventory you need to be a fine tuned retail machine; too much inventory results in less profit due to excessive markdowns late in the season and too little inventory results in lost sales. So, if you know the ideal amount of inventory you will be a much more profitable business.
Open to buy planning as I said earlier gives you the ability to read tomorrows newspaper today, so to say. Information is collected from your sales history and your POS system or your manual inventory. Your information is then crunched by retail analysts who compile and translate the numbers, and get them back to you as set of plans you can understand. These plans show you where you are under or over stocked based on your sales history. The plans tell you how many dollars you should spend in each department in your store. If the plans show you are overstocked in certain classes, your analyst will recommend you have a big sale to liquidate excess stock. Keeping a handle on your inventory is essential if you deal in clothing because after a few months it is almost impossible to sell no matter how much you reduce the price. The plans will also forecast what your sales should be if you stick to the recommendations the plans provide for purchasing and marking down items, and they are a great source of buying knowledge when you go to market.
All of this being said, open to buy planning is only as good as the seriousness of retailers who want to take their business to the next level. If you succumb to temptation and buy too much, you will continue to tread in the murkie waters of retail gloom. You can sweep the idea that you might need to make some changes under the carpet, or you can take charge of the situation and work to make your business more profitable now.
