ales targets to inventory requirements. Is saving many hundreds of thousands of dollars to restore the right ratio of inventory investment to the sales forecast a unique scenario? Hardly. It’s very easy for a small retailer to find themselves in this situation. Start with a soft selling season, mix in a buying pattern that has too much inventory coming in too early, and in an instant it’s easy to suddenly be cash poor. For some small retailers, it’s a chronic pattern that repeats itself year after year. What small retailers who find themselves in this situation are lacking is a plan. They’re lacking a quantitative plan that tells them how much inventory they need and when to bring it in and how they’re doing once they get into the selling season. In retailing, such a plan is called open to buy. Open to buy is a merchandise budget, usually stated in retail dollars, frequently broken out by key departments or categories. It is particularly appropriate for fashion and seasonal merchandise, where the specific items may change, but departments, classifications and sub-classifications remain relatively stable, and inventories are brought in at the beginning of the selling season that need to be managed down to a predetermined ending level by the end of the selling season. So how do we begin to put open to buy to work? We have to build out a plan. Open to buy begins with a sales plan, which for most small retailers is broken out by the month. The question to ask is a very basic one: “For each month, what is the most likely level of sales from stock (excluding special orders)?” Once a sales plan has been developed, ending inventories need to be planned. The question to ask is this: “How much inventory do I need at the end of each month to support the next month’s sales (in some cases the ending inventory may need to support more than just one month of future sales), as well as maintain effective merchandise displays?” Once sales and inventory has been planned, an inventory receipt plan can be arrived at. For any given month, the planned inventory receipts answers the question, “How much inventory do I need to bring in to cover my sales, markdowns and adjustments, given my planned beginning inventory, in order to end up with my planned ending inventory?” The open to buy within any given month is the planned receipts for that month less the current purchase commitments. For future months, especially for future seasons, it quantifies any remaining available open to buy for that specific month. A well thought out plan establishes the critical benchmarks for evaluating exactly where you are once you get into the season. It’s after the season gets underway that open to buy really gets put to work. A well structured open to buy presents both the plan and actual results and allows management to track progress as the season goes along. Actual sales can be compared to planned sales, actual receipts to planned receipts, actual ending inventories to planned ending inventories, and future open purchase order quantities to planned receipts for each month. Like any good budget, open to buy has a future orientation. The open to buy through any given month is the planned ending inventory less the projected actual ending inventory. For future months, it identifies through any given month whether additional inventory is needed or whether too much inventory has already been committed to. Within a season, open to buy gives a small retailer the information necessary to make critical decisions regarding what to reorder, what to back off on, and how to allocate any remaining open to buy dollars. If a department is exceeding its sales plans, ending inventories will likely come in below plan, creating more open to buy. The open to buy quantifies how much additional inventory is necessary. Open to buy gives a small retailer the information necessary to assure that ending inventory levels don’t exceed plan, and tie up valuable cash. If sales are coming in below plan, ending inventories will likely come in above plan, shrinking any open to buy, or even creating an overbought situation. The open to buy quantifies how much any future purchase orders need to be reduced to get the inventory back in line. Like any management tool, open to buy is merely a tool to help a small retailer better manage their inventory. It requires an initial investment in time and attention to build out a realistic plan, and diligence to maintain it as you go through a season. It can yield dramatic results quickly in most situations, from increased sales to leaner inventories and reduced markdowns and overstocks. It’s a tool that in the hands of a fully committed small retailer can profoundly improve financial performance. Marguerite Bell, our business fitness specialist, is one of our experts in business fitness  and can be contacted at margueritebell@retaildoctor.com.au if you indeed find the need to save many thousands of dollars. Happy fit retailing Brian Walker