OTB
Open-to-Buy
Open-to-Buy is a Retail Term describing the merchandise budgeted for purchase by a retail store for a given period that has not yet been ordered and/or the Practice of managing such Open-to-Buy plan. This includes managing inventories that need to be managed down to pre-determined levels at the end of the period or season.
Calculation
Open-to-Buy is typically calculated as:
| Open-to-Buy | |
| = | Sales Plan including Markdowns |
| + | Ending Inventory |
| – | Beginning Inventory |
| – | On-Order |
| – | Net Transfers |
| – | Returns |
where
- Sales Plan = The estimated sale of merchandize during the period
- Markdowns = The planned amounts required for special sales events, promotions or clearances
- Ending Inventory = The desired end-of-period inventory, typically based on stock-to-sales ratios and phase-out plans
- Beginning Inventory = The estimated or actual start-of-period inventory
- On-Order = The amount of merchandize for which orders have already been placed (and confirmed)
- Net Transfers = The planned transfers between store locations of merchandize. This is the net increase of merchandize
- Returns = The estimated amount of resellable merchandize return to the store
Importance
Open-to-Buy (Analysis) is an effective tool for store management and buyers in Retail to manage a key asset; Inventory. Without a solid grasp of the flow of goods throughout an operation, retailers often find their inventories to be out of balance. While multiple classes may have a full year’s worth of sales sitting on racks across multiple stores, other classes may constantly be out of stock. Not only does this negatively affect cash flows, but just as importantly, it affects customer traffic as no customer wants to see the same old goods sitting around week after week while the items they really want are constantly out of stock.
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