How to Determine Open-To-Buy Dollars When Starting Out
Nascent shop owners often e-mail us at The Online Guide to Children's Fashions asking this question: "I want to open a children's store and want to stock it for the first season. How much will I need to spend for opening inventory?"
We understand new retailers' concerns. Their fear: spending too much on goods and watching the merchandise get dusty on the racks, or not offering enough choices so shoppers go elsewhere. Either way, it's a scary scenario.
To ease some of the anxiety new proprietors face, we asked buyers and retailers with extensive childrenswear experience for their insight. What I heard repeatedly was this: Work with a basic industry formula for open-to-buy inventory dollars that is tailored to the retailer's specific style, location and clientele.
Here is the definition of open-to-buy supplied by The Retail Owners Institute's website: An inventory purchasing plan based on anticipated sales and desired inventory turnover rate for various categories of merchandise, departments or entire operations.
ROADMAPS FROM BUYING EXPERTS:
To offer guidance, we asked Michael Elliot, owner of Kids Resource, a wholesale distributor that handles many popular moderate and some better brands, if he suggests an opening inventory formula. Elliot begins with the square footage of the store, deducting "dead" areas such as the bathroom, the sales counter and a play area from the total to arrive at a useable square footage number, before affixing a dollar amount.
"The amount to open a children's clothing store is averaged at $12 per square foot. $20 per sq. ft. gives you a larger crowded selection merchandise, and $30 per sq. ft. fills every inch of the store. On a 1,500 sq. ft. store one is looking at approximately $18,000, $30,000 or $45,000 worth of inventory. If one uses a lot of free props for themes that take up a lot of space, then $12 a sq. ft. is okay. Add $3-$5 per square foot for better/European collections."
Rhonda Braxton, the owner of Kendall's Closet, a specialty boutique on New York's Upper West Side, finds Elliot's estimate far too low for the kind of merchandise mix of upper market domestic and European lines she stocks. Her estimate is $100 per square foot to fill her 450-square-foot store. But, she says, "My store is packed and I offer sizes up to 10, so a similarly sized store with fewer sizes would pay less."
Decide on the profit your aiming for per year. If she sets her sights on $180,000, her open-to-buy dollars will be approximately $90,000. If you divide the $90,000 by two seasons fall/winter and spring/summer (that, too, can be broken down into smaller "seasons" such as Holiday and Resort) the figure is $45,000 per buying season. If you want a square foot number, then divide the $45,000 by the number of sq. ft., in Braxton's case it's 450 sq. ft., and the dollar per square foot is $100.
Braxton does not figure a deduction for markdowns or unsold merchandise, because, she says, "that's usually taken care of by vendors who don't ship or items that need to be returned to manufacturers." If she were to deduct a number from her open-to-buy dollars to cover problem inventory, it would be approximately five percent.
Mercedes Gonzalez, the purchasing director of The Global Purchasing Group in New York City, works with new startups of all kinds. Her method begins by dividing the store into departments, then finding a median price per item per department.
Gonzalez suggests first determining the number of departments in your store. A children's store, for example, might have a layette, one department each for girls' and boys' toddler sizes, and two more for sizes up to 10 years. She then suggests that each department be broken down by the kinds of goods you plan to stock. For example, a sleepwear department might have girls' pajamas, boys' pajamas, robes and slippers. Decide how many styles you want in each category, then multiply that number by the average wholesale cost of the garment, say $20. You'll come up with a rough idea of how much you'll need to spend, and a concrete category breakdown to follow when you're in the market.
When asked what a new retailer should expect to spend their first season, Gonzalez said, "I worked with a new retailer opening his children's store in the Soho area [one of Manhattan's most expensive neighborhoods]. I suggested he spend 70,000," then she added, "That's for the first month. The second month you may need to fill in with $30-$35,000 the third month maybe around $20-$25,000." Yes, that's a lot of cash to lay out. But, she says, "If you do it right, you'll be making sales as you're bringing in new merchandise." Gulp.
How does one "do it right?" Gonzalez says, "Everything is negotiable. If you can't get a vendor to give you a discount, a retailer can ask for assistance with freight, request an early delivery or ask for store props such as shelving units to help effectively display the vendor's goods and enhance store sales. Another idea is ask vendors to go in on the cost of newspaper or magazine advertising or supply the retailer with promotional postcards."
The formulas above are small potatoes for Joseph Antee, a full-time professor at New York City's Fashion Institute of Technology in the Fashion Merchandising department. Before joining F.I.T.'s faculty, Antee helped determine how luxury retailers like Bergdorf Goodman, Barney's and the Donna Karan shops in the U.S. spent their open-to-buy dollars. Of course, when you're handling budgets in the millions, a one-year or even six-month plan is too vague. "In bigger luxury stores," says Antee, "what you spend must be determined month-to-month." The formula Antee supplied, will be helpful after a retailer is in business for a few months. The method, he says, "Works just as well for smaller stores."
Start the beginning of the month or "B.O.M." with a projected sales total. At the end of the month you'll make two deductions from that figure: actual sales and markdowns taken from your end of month or "E.O.M." figure. From your E.O.M. you'll subtract any "new receipts" or inventory scheduled to arrive, and you'll have your open-to-buy dollars for the next 30 days.
SOME ADVICE BEFORE SPENDING YOUR FIRST DOLLAR
Understanding what open-to-buy dollars mean and choosing a formula is necessary when you're ready to begin buying for your first season. But before you begin spending, it's important to adopt a few basics truths to your buying mantra.
Lou Argyropoulos, who has worked as sales consultant to retailers in the kidswear business for over 20 years and is now the sales manager for Gold Rush Outfitters, says the bottom line is, "Know who your customers are, what they want and how much they're willing to spend." That advice sounds simple, but if every retailer followed it, there'd be fewer racks holding unsold items at the end of each season.
"The worst mistake," says Argyropoulos, "is for new retailers to overbuy in their first couple of seasons." Why? "It's important to always have fresh stock in the store," he says, "If the shop is filled with outdated merchandise, the selection looks stale, and unsold stock means there's less open-to-buy dollars, making it harder for retailers to manage their cash flow."
Roberta Orell, a former buyer with the Children's Buying Connection who now works as a buying consultant to children's wear retailers as a Buyer for Hire, concurs with Argyropoulos' comments. "The worst mistake a buyer can make is to write too big an order with one vendor and then leave holes in the rest of their merchandise mix," Orell says. "One way to buy," she notes, is to "not leave paper behind." In other words, when you're in a showroom or going from booth to booth at a trade show, Orell suggests telling vendors that you'll fax over your order in a day or two. "That way," she says, "a buyer can look at all their orders and edit. Maybe they've seen a T-shirt in one booth, and later that day spotted another T-shirt at a better price point that they like more. They can scratch the first T-shirt off their order.
BEEN THERE, SOLD THAT: ADVICE FROM RETAILERS
Anne Marie Romanczyk, the proprietor of City Cricket, a small children's specialty shop in New York's Greenwich Village says, "It will take some time to gauge the buying patterns of your customers and, the first time around, you're going to make some mistakes. So buy conservatively."
"Take a good look at the neighborhood," said Lisa Maldonado, who, until March 2005, owned Fidgets, a boutique in Brooklyn, NY. "What do moms need from a small local retailer in your area?" In Park Slope, where Maldonado had her shop, the mothers look for "nice goods with a bit of a funky edge, so the items have to be practical and machine washable." To meet their needs, she stocked T-shirts and casual separates and "not too many special occasion dresses, because my customers don't look to me for that."
DON'T CLOSE WITHOUT
Before venturing off with order pad in hand, have your open-to-buy dollar amount nailed down and a good idea of the cash allotted to each department. And, just as important, be true to the style of your store. If you'll be catering to a clientele that prefers classic looks, dip into the trends with your accessories. If you're selling in a high fashion area and your merchandise is trend driven, bear in mind that a trend is good for just one season, so don't overbuy in any area. You can always reorder if you need to. -Tina Barry