Open To Buy Planning

Good inventory control is critical to ensuring an adequate level of stock is on hand for the amount of sales being generated. Having too much inventory (or the wrong type) during certain periods can slow your cash flow and reduce profits with too many markdowns. On the other hand, if you under buy and miss sales opportunities then you are not making your potential profit. A retailer can be sure to stock the right amount of the right products at the right time by using an Open-To-Buy (OTB) plan.

Open-To-Buy can be calculated in either units or dollars. OTB is essentially the difference between how much inventory is needed and how much is actually available. This includes inventory on hand, in transit and any outstanding orders.

In order to take advantage of special buys or to add new products, some of the OTB dollars should be held back. This also allows the retailer to react to fast-selling items and quickly restock shelves.

Consider maintaining an OTB plan for your business as a whole, but also plan for each category of merchandise you stock. The plan can be maintained on paper, in a spreadsheet or by purchasing one of the several retail software packages available that contain Open-To-Buy programs.

The Open-To-Buy Formula

Planned Sales
+ Planned Markdowns
+ Planned End of Month Inventory
- Planned Beginning of Month Inventory
----------------------------------------
= Open-To-Buy (retail)

For example, a retailer has an inventory level of 150,000 on July 1st and planned 152,000 End of Month inventory for July 31st. The planned sales for the store are $48,000 with $750 in planned markdowns. Therefore, the retailer has 50,750 Open-To-Buy at retail.

Note: Multiply that number by the initial markup to reach the OTB at cost. If our markup is 40%, then our Open-To-Buy at cost is 20,300.

Before placing your Open-to-Buy plan into operation, ask yourself if each number is realistic. Does it make sense for the way you do business? Keep in mind that many of the figures on your inventory plan are only guidelines. A good rule of thumb is if your actual ending inventory is within five percent of your plan, you are doing very well.

Sample 6 Month Plan

6-Month OTB Plan	June	July	August	September	October	November
Beginning Of Month Inventory	155,000	150,000	152,000	157,000	157,000	165,000
Sales	47,000	48,000	50,000	50,000	52,000	48,000
Markdowns	1,000	750	750	1000	1500	1000
Open-To-Buy	43,000	50,750	55,750	51,000	61,500	37,000
End of Month Inventory	150,000	152,000	157,000	157,000	165,000	153,000

Competitive Shopping, Analyze your Competition

I'm a retailer, a retail consultant specifically, a student of retailing. I simply can't walk by a store, much less into a store, without trying to figure out what makes that store tick, how customers perceive the store, what that store does well, and what I can learn from them.

I love to stop and admire a particularly effective merchandise presentation, or watch a really talented sales associate work with a customer, or take in a really well thought-out cash wrap. I notice things, like how corners are lit, and how many units of an item are on display, and whether customers are happy to be there, or eager to complete their business and be on their way.

When I work with clients, we talk a lot about competitive shopping. I'll ask them about who they consider their competitors, and how frequently they shop them. And the responses are usually pretty consistent.

Most independent retailers have a clear sense of who their key competition is (though they may construe who their competition is far too narrowly), and they shop them frequently. But when you ask what they saw the last time they shopped the competition, too often I hear about problems, weaknesses, and how uncompetitive they are. It usually takes my prompting to get them to talk about what their competition does particularly well, and what can be learned from them.    

The key to understanding your competition is to understand why their customers -- your potential customers -- view them as a preferable source for the products and services they offer. And it's not just your competition that you can learn from, it's every retailer that you encounter. Here are a few things that I look for when I visit a store:

• Who is their target customer, by gender, age, and income level? How do they entice their target customer to come into the store and shop? 

• When you walk in the store, have they constructed a compelling visual presentation? What's the critical message they seek to communicate with that initial impression? How have they built out and appointed the store to reinforce that impression? 

• What's the product/service niche they are trying to occupy? How clearly are they communicating their core competency? What level of customer service and product knowledge would customers require and/or expect based upon this niche? 

• How do they lead their customers through their stores? What can their physical layout tell you about their traffic pattern, their merchandising strategy, and their dedication to customer service?

• What are their most important products or category of products? Where do they put them in the store? Do they view these items as destination items or impulse items? (Some of the most successful retailers are built around an ever-changing assortment of high impulse items.) What's the balance between highly identifiable branded goods, and unique, distinctive goods? 

• What is their pricing strategy? Are they a price leader, commanding a premium price based on quality, cachet, customer service and shopping experience? Or are they matching price, competing on location, availability and ease of shopping? Or are they competing directly on price, on being the lowest price? 

• How are they staffed? Are there enough associates? Too many? Are their associates order-takers/register-ringers, or do they possess specialized knowledge and expertise? Are they focused on helping customers, or on other things?

• Is this a place just to buy things, or is it a place that exudes a personality, that's a fun place to be, where buying something is part of an overall experience? Are customers in and out quickly, or do they tend to linger?

• How well do they execute? Is the store neat and clean? How well are the displays maintained? Is the cash-wrap organized and clutter-free? Is the merchandise clearly signed and priced? 

• How effective is their signage? What are they trying to accomplish with their signage, to reinforce the feeling of the store, or convey critical information? Is the signage particularly distinctive? What other methods are they using to reinforce the customers experience in the store? 

• What merchandise displays are particularly compelling? Innovative? Why? How are they using lighting and other techniques to draw their customer's attention, and highlight specific presentations? 

• How fast do they turn their inventory? Does the merchandise look fresh, or like it's been there a while? How well do they balance between building compelling merchandise displays and carrying more than they might reasonably expect to sell. What might this suggest about their vendor and supply chain structure? 

• How clean are their assortments? Are they in pristine, never-shopped order? (I'm known to do a quick count of inventory on a table, shelf or rack, to see how much has sold down.) Is there a sea of markdowns? What's the balance between full-priced and markdown merchandise, and is that balance seasonally appropriate? 

• What are customers buying? From observing customers at the cash-wrap, what can you learn about their likely units-per-transaction?

• What's the one idea I can take from this store and apply to my own business?

You may have a whole series of additional things that you look for when you walk in a store. No list can ever be complete. There's a reason why your competitor is your competitor, and it's critical that you understand what that reason is. But the skills of competitive shopping shouldn't just be applied to your direct competition. Rather, the key is to be a student of retailing, constantly looking for new ideas that you can apply, in your own way, to keep your store fresh and dynamic.

Valuing Customers Power

At the very heart of any business are the customers, the buying public, the consumers.  They hold the key to any success.  Of course corporate planning, good corporate and managerial leaderships, investors plowing the money are equally important, but the bread of the dough comes from the patronage of our customers.

In my years of being in the retail business, be it in store operations, merchandising, category management, my role does not end when I have done my responsibilities as a merchandising manager, its an on-going flow and giving much attention on the front-line of the stores, the sales clerks, merchandisers, sales associates, sales personnel, however we call them, they play the bigger part in ensuring the customers who walked by the store aisles are given utmost importance.

In the past decade, businesses around the world have started placing a renewed focus on customers. They’re doing this because they see that customers have more choice than ever before. If customers don’t perceive that a company’s offering is worth what they’ve paid for it, they’ll take their money to a competitor who offers better value. That competitor may be right next door or on the other side of the world. So what do customers value and how can we go about understanding customer drivers?

The idea that business success comes from focusing on customers is not new, and vision and mission statements are full of aspirational language about customer satisfaction, customer loyalty, and being customer centric. Yet, some of the most metric-driven companies would be hard pressed to explain how they are measuring and managing the customers’ view of their company’s value to them.

What’s lacking in most companies is a real understanding, alignment and focus on their customers, and a genuine understanding of what value they can provide to their customers. To date, companies have focused on “what they can do to their customers”, rather than “what they can do for their customers”.

Companies have invested heavily in the much-hyped introduction of CRM systems so that they can segment their customers. This then allows them to sell more effectively to them, provide customer support to them at the lowest cost, and target marketing campaigns to them more cost effectively. The only mention of value is the value of the customer through lifetime value calculations. You never hear of CRM systems being introduced to make it easier for the customer, and thereby offer them greater value.

To be successful, businesses need useful and practical ways to capture customer needs, measure how well they’re satisfying those needs compared to the competition, and build action plans based on what customers value to win in the marketplace. Firms of all sizes and in varying industries are struggling to:

• gain a deeper understanding of and agreement on precisely what customers value
• create reliable methods of measuring the value of what they offer compared to the competition
• provide the best value to customers, to employees, and to shareholders; and then establish the connection among these three imperatives
• increase market share and loyalty while maintaining and even improving profitability.

Businesses that know what customers value, know how to deliver this value better than the competition, and know when it’s important to communicate with customers so that they perceive the true value delivered achieve competitive advantage, better business results and increased shareholder value. A growing body of statistical research is proving this common-sense principle.

The “why” of Customer Value Management

There is an emerging art and science of Customer Value Management (CVM) that is proving its worth when it comes to understanding what customers’ value. Firms of all sizes that capture and use customer data with the discipline, passion and understanding they give to operational and financial data are learning that this business practice is well worth the time and money involved. By focusing on understanding customer drivers they are winning in the customer market, they also win in the employment market (attracting and retaining talented people) and in the financial market (attracting and retaining the investment required to keep the business alive and growing).

At the heart of Customer Value Management (CVM) is an understanding of how value is created for the customer by a company’s:

• products, services and business relationships
• overall cost of doing business

Customer Value Management is both a way of thinking and a set of techniques and methods that anyone in business can use to determine where to focus time, energy and money to create value for customers. Research and experience have shown that if you do this better than the competition, you’ll win business and reap the rewards in the form of profit and shareholder value.

Customer Champions, the leading practitioner of Customer Value Management in the UK and Europe, has witnessed firsthand some of the difficulties that companies face while running customer-focused programmes. They have found that, although nearly all major companies in the UK and Europe are conducting some form of customer feedback programme, only one in three plans any actions based on that input, and only one in nine actually implements any change because of it.

The “how” of Customer Value Management

The concept of Customer Value Management is really very simple. It’s about:

• Choosing value: Asking customers in your target market what they value, finding out how they rate the value you deliver compared to the competition, and using the understanding of customer drivers to focus priorities and then decide what value proposition to take to market.
• Delivering value: Making sure your business processes are aligned with your value proposition, and determining what business improvements on your part will deliver greatest value to customers.
• Communicating value: Educating the market on your value proposition and how you’re focusing investment to deliver greater value than the competition.

Keeping Customer Loyalty and Happy

Customer's loyalty is unstable, they easily shift from one product providers as they easily gets bored, that is why building relationships that goes beyond assisting their needs, kept adept with their caprices, no matter at times impossible, I emphasize the importance of "always saying yes, perhaps, will do our best attitude" towards their requests".  This way we make them leaving our stores happy, satisfied and wielding the perceived "power" of their value in our stores.  

We never want them leaving unhappy and unsatisfied as we would want to see them again and become our loyal patron for a very long, long time, and that means our cash registers will keep on ringing because they are their always happy to shop and our royal patrons.