Things you should never do- Lesson 3- Refuse to learn the lingo of the retail trade

One of the things I find fascinating is that off price retailers have a greater tendency to dismiss traditional retail concepts. If you have a retail operation, there is a term called “open to buy”. You can google this term to find out more than you ever want to know, but in general, open to buy is your purchasing budget for a particular time frame. Calculating this is based on many factors, such as your cash flow, your projected sales, how much inventory you already have on hand, how much you have on order, and so on. Most off price sellers that I have come across completely ignore this concept in favor of hoarding (as I like to call it).

Let me give you an example: a jobber has a deal on high end merchandise that they get once every 4-6 months. Your typical off price seller looks at that and figures that they need to buy enough inventory to last them until the next deal comes in. So they buy 4-6 months of inventory at a time. Usually, people like this never turn the inventory over fast enough to make a good profit and by the time that next deal comes in, they are not sitting on as much cash as they had hoped.

Part of the problem is that many off price apparel sellers behave with a starvation mentality, they hoard as much inventory as they can because they don’t know when the next deal is coming. It’s a bad way to eat, and it’s a bad way to run a business. It almost never works.

Let me say that again, it almost never works.

Purchasing must be based on your projected sales and inventory turn (you can google that too). It is unwise to buy more than you can sell within a reasonable amount of time, because you are tying up your cash and retail (I don’t care what you sell) is a cash flow sensitive business.

If you’re serious about off price selling, you really should pick up a good book on retail management, read a few websites, or take a class. I know far too many sellers struggling because they refuse to implement standard retail management concepts, that are time tested and exist for very good reasons.