BY NOW THE DUST has settled from the all-important last quarter of 2011. You’ve run numerous reports and analyzed the data. I hope this answered your key questions. Did total sales increase over 2010? If so, in which departments? Which months generated the increases — was there any momentum or other trend? What were the top sellers in each department? How much aged or dead stock do I still have?
Now that you’ve achieved a good understanding of your sales trends and on-hands, it is time to consider your next investment in inventory.
Creating an open-to-buy is not difficult, but it is time-consuming. It is also essential. A monthly open-to-buy acts as the foundation for disciplined purchasing. No one likes a negative open-to-buy number!
Here is a step-by-step guide on how to create one:
Step 1
One of the most important parts of an open-to-buy is the projected sales for the month by department. Remove all repair and services revenue from the equation. Also remove hold-buying revenue.
Ask yourself these questions:
- What did I achieve in sales, average sale, units sold and gross margin in 2011?
- Calculate what you WANT to achieve (either increase or decrease) for each of these metrics based on your knowledge of your business.
Step 2
With your total sales objectives for 2012, you can populate a sales plan (see my column on how to create a sales plan “Merchandising from a Clean Slate — Part Two”) or construct a simple Excel spreadsheet and break it down by month based on the percentage sold last year.
Creating an open-to-buy is not difficult, but it is time consuming. It is also essential.
Step 3
Convert your monthly sales objective into cost using your gross margin objective.
Step 4
Allocate the sales at cost to each of your departments (or collections/programs if that is how you analyze your inventory), again based on the sales distribution of last year. This is your opportunity to “massage” the numbers. For instance, do you want to grow a department? Do you need to pull down a loose diamond department because of special-order diamonds?
Step
The second number to input into your spreadsheet is your inventory on hand at cost at the end of the prior month. Whether you include consignment and memo is your call, but I recommend doing so. Your consignments should be working for you, not just taking up space.
Step 6
Run an on order report at cost by department and add to your on hand number — this is your total stock.
Step 7
The difference between your projected cost of sales and your total stock is your preliminary open-to-buy.
Step 8
There are additional deductions from your preliminary open-to-buy numbers:
- Projected special orders
- Projected sales of consignment and memo
- Projected trade-ins
- Projected estate pieces from gold buying
- Projected allocation of funds to never-outs, fast sellers, or advertised product
- Here are some additions to your preliminary open-to-buy numbers:
- Pending return to vendors
- Pending scrapping of stock
- There are other miscellaneous inventory adjustments that can go either way, and if significant, they should be taken into account.