It’s important that an independent retailer understand some very basic retailing terms and principles that can make a huge difference in their ability to operate an effective and profitable business.

The message below contains a brief  explanation of some important retailing terms.

The retailing terms below are often misunderstood by new retailers. Here are some simple explanations of some of the most used retailing terms.

Turnover

The term  “turnover” refers to the number of times in a year you sell( or turn)  your AVERAGE beginning of the month( BOM) stock at retail.

An example

Store yearly sales   $300,000

Average BOM stock at retail $100,000

Turnover rate   3 turns a year.

Open To Buy

Open to Buy is the dollar amount at retail that you can purchase in a given month that will allow

you to hit your next months planned beginning of the month stock plan at retail.

A store owner should plan their  monthly sales, monthly BOM stock levels and monthly Open To Buy at the beginning of each season.  Each calendar year is split into two seasons, Spring( January through June) and Fall ( July through December).

Gross Margin

Gross margin seems to be a term that means different things to different people.

The way I was taught to figure gross margin is this.

Retail sales( this number should not include sales tax collected and sent to the Government)

Minus cost of goods ( usually figured at 50%)

Minus freight cost  ( I figure at 5% of COST purchases)

Minus markdowns ( A good number to use is 5% of retail sales)

The total is Gross Margin dollars.

This is the number you have to pay all of your operating expenses out of.

After deducting all of your operating expenses what you have left is pre tax  Profit or Loss.

You can see why  this is such an important calculation.

The success of a business is dependent on balancing operating expense to Gross margin dollars.

There are other retailing terms that could be  touched on, but my experience is that the above terms

are important to understand and need to be a part of  every retail store owners vocabulary.