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Open To Buy Vocabulary

So... you're new to the world of retail. You are a start-up, you are an entrepreneur. You keep hearing retailers mention "open-to-buy" and you don't know the first place to start and are left searching for meaning on Wikipedia (which we all know, could go either way).

We've broken down the "Big 10" OTB vocab words for you here so you're not left totally dazed and confused. 

1. OTB (also know as the big, bad Open-to-Buy):

OTB is a tool for inventory management that allows for flexibility in planning based on your successes and challenges

2. Over Buying:

Over buying is when you purchase too much inventory. This causes a need for increased markdowns that therefore decreases profits.

3. Under Buying:

Under buying is when you don't purchase enough inventory and therefore lose revenue and customers because you don't have enough to sell

4. Plan Sales:

The amount of sales you are forecasted to do monthly. 

5. Markdown

Any reduction in retail price after merchandise has been received in stock. Though this may sound like the worst thing ever, the consumer knows this as a sale (who doesn't love one of these) and for retailers, it's an important tool for managing inventory and profitability.

6. Stock to Sales Ratio

The comparison of the sales to be done to the amount of inventory needed to do those sales (completed based on MONTH)

7. Turnover

Compares annual sales to the average inventory over 13 months (completed based on YEAR)...this measures how quickly your merchandise is moving, or how quickly your inventory is changing

8. GMROI (Gross Margin Return on Investment)

Measurement of inventory turnover as well as gross margin dollars that the turnover of merchandise creates...simply put, it's the retailers return on investment.

9. MMU (Maintained Mark-up)

Gross profit on merchandise sold

10. IMU (Initial Mark-up)

The difference between the cost of an item and it's original selling price (usually done as a %)

 

Posted by Samantha Cohen
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