Increase Profits by Controlling Your Inventory through Open-to-buy, Sales and a Virtual Warehouse

Open-to-Buy (OTB) is the most important retail financial tool. It helps to control the biggest expense category in any retail environment. This is important in museums with few significant expense categories that can affect savings (rent, salary, etc.)

Using Open-to-Buy (OTB) results in fewer markdowns due to excessive product levels, higher margins, increased profits and more money to support museum programs. Not to mention a better night's sleep!

During slow times, OTB can get you through a critical period. Faster inventory turnover and fewer inventory dollars invested at any one time provide a consistent supply of fresh inventory dollars. This enables you to react quickly to new products.

Eliminate an abundance of inventory by slowing down your buying. Replenish only best sellers and seasonal items, selectively cancel backorders and remerchandise more often. Reduce retail prices and market to your members, volunteers, staff, board, etc.

Sales are a necessary strategy to move slow-selling merchandise and excess inventory. Before you mark product down, however, try re-merchandising, suggestive selling and/or bundling it with other merchandise.

The objective of a regular sale section is to permanently reduce inventory. In addition, try promotional sales that are temporary, focused or centered around special events.

Pricing sale items as a percentage off has the strongest marketing impact. Reduce items enough to move the merchandise quickly.

Limit the number of products on sale. An advertised storewide sale encourages customers to wait, reducing pre-sale revenue. Limit the duration of the sale to create a sense of urgency.

Examine why your inventory is too large to better manage it in the future. Were you lured into buying too much by offers of free freight, quantity discounts, co-op advertising or attractive dating? Did you pay too much and end up with products that were priced too high? Did the inventory arrive too late in the season?

Create a virtual warehouse to catalog proprietary product and multi-period purchases of product to eliminate distortions in store inventory level reports,

The store can then 'buy' the product from the warehouse as needed, thus keeping the store inventory in balance with current needs. Other departments can either 'buy' directly from the warehouse or through the store.

Accounting for this inventory separately will make it easier to evaluate costs, sales and return-on-investment (ROI) associated with production of these items.

Presented by Andrew Andoniadis on May 5, 2003, at the 48th Museum Retail Conference & Expo in Philadelphia, PA.

© 2003 Andoniadis Retail Services. All rights reserved. Andrew Andoniadis is a principal in Andoniadis Retail Services, Portland, OR, a consulting firm specializing in revenue-generating strategies for museum stores. He can be reached at (503) 629-9279 or e-mail him at andrew@andoniadis.com.

Planning Worksheet for Open-to-Buy (PDF)