Open-to-buy (OTB) is the buying budget for a specific trading period. It is important to monitor OTB to reduce instances of over or underbuying for healthy inventory levels and efficient trade movement.
Learn how to use the Omnilytics dashboard to analyse and optimise your OTB management.
In this article, we will review the OTB in a situation of,
Overbuying occurs when the actual inventory cover exceeds the planned inventory. If you encounter this situation, you must first analyse why this has occurred. Possible reasons include:
- Sales were much lower than planned?
- Did you receive orders too early? If orders were shipped too early, storing the stock in a warehouse will incur extra cost
- External factors (such as the environment, market sentiments, competitor activities/promotions, economics etc)
Suggested actions you can take to drive down inventory cover:
- Increase your planned sales for the following month.
- Plan a promotion
- Cancel incoming delivery units in the next month
- Delay incoming delivery to another month where the inventory cover is lower
- Revise planned OTB
The following are steps you can take to support your analysis and actions:
Step 1: Assess market conditions
When overbuying is a result of low sales, this can be attributed to external market factors. You can analyse the overall performance of the market and key competitor on the Overview tab in the Competitor Benchmarking module.
Here, we have selected the date range, 1 April to 30 June 2020 and compared that to the preceding date range of 1 January to 31 March 2020. If your brand is subjected to seasonal changes, you can also compare the performance against the same trading period last year. In the image above, it shows all the key retailers have registered a drop in total products, excluding Love, Bonito.
In this example, we can see that the drop in sales is likely due to market factors, as most of the key fashion retailers are experiencing a downturn. This signals that you will need to revisit your OTB and possibly revise the existing plan.
Step 2: Optimise product phasing
You can utilise the Calendar module to help you assess and identify the best months to shift your OTB. In this example, we will be analysing Pomelo Fashion’s phasing patterns.
By toggling to the previous year to compare the launch periods, it is obvious that Pomelo’s launches were significantly impacted by the market conditions. While the dip in launches earlier in the year may be attributed to a delay in the shipment or factory closures, the more recent results are likely due to product phasing.
When compared against the prior year, we can see that the results this year was an anomaly and the product launches have continued to decrease over the last few months. The number of SKUs launched have dropped by over 50% in the last quarter, this indicates that the existing market conditions have worsened significantly.
If Pomelo is a key competitor or retailer/brand that operates within the same niche, it is wise to re-forecast your sales and OTB by comparing the internal rate of sale against external demand.
Step 3: Plan a promotion
Conversely, if the market conditions are strong based on Step 1, and the reason for the increased inventory cover is attributed to delays in shipments, you can increase sales in the coming months to recover your OTB.
The Visual Merchandising module would be useful when researching for marketing campaigns. Based on the calendar seen below, select a data and toggle between ‘Landing Pages’ and ‘Newsletters’ at the top to access our archive of campaigns launched by that brand or retailer.
If you encounter an underbuying situation, analyse the reason for this and identify if it was related to any of the following scenarios:
- Were there key trending products that drove a high volume of sales?
- Were the products underpriced?
- Any unexpected events for e.g. a sudden declaration of public holiday, an influx of tourists to brick-and-mortar stores, etc.
Suggested actions to take:
- Bring forward an incoming stock and readjust the planned intake for the next month
- Increase the next order if your order is not able to be shipped earlier
- Bring forward planned intakes, while increasing the buy to make up for the difference in intakes
- Adjust the product prices to align with market expectations
Here is how you can utilise the dashboard to support your analysis and actions in an underbuying situation:-
Step 1: Cross analyse assortment against trending categories
When assessing if key trending products are driving volume sales, you can refer to the Trend Performance module to validate a trend and its demand before deciding to replenish.
There are many micro-trends or fads in the market. It is important to assess the demand behind a trend before you decide to reorder or produce similar products in the coming months, to avoid overstocking if the trend is short-lived.
Click into the category you are analysing to access the Trend Performance chart of your selected category. In this example, it shows activewear as a bestseller with a high trend score and stable demand. With this, you can confidently decide to reproduce or reorder this item.
Step 2: Identify category opportunities to expand OTB
In the event you need to increase your buying budget to meet demand, you can refer to Product Analysis: Trade Performance tab in the Competitor Benchmarking module, to validate trend performance and spot category opportunities to leverage on.
From the tab, select the top retailers you wish to compare against from the main filter and select a date range. In this example, we are analysing the top retailers for the Singapore market in Q2 of 2020.
In the trade analysis chart, you will find the performance benchmark for all categories on the first row. This benchmark will be used to measure the performance of individual categories such as Tops, Shoes, Activewear and more.
When compared against the benchmark, the analysis shows Activewear achieving a higher sell-out rate and new-in rate by 3% and 5% respectively. Expanding on the same analysis, it shows Activewear shorts as the bestselling subcategory as its sell-out rate and new-in rate are significantly higher compared to all other subcategories.
Click on total sell-out to view all SKUs that have sold out within the date range.
Step 3: Adjust product prices to align with market expectations
Pricing is an essential part of retail to capture demand and maximise margins. To compare the pricing strategies of key competitors, use the Product Analysis: Price Analysis tab and understand how different retailers price products of the same category. In this example, we are comparing the jersey tops in Cotton On and H&M.
An overview of the analysis shows Cotton On having a high percentage of jersey tops (ie. approximately 57%) selling out within the price range of SGD10 – SGD15, while H&M’s tops are priced slightly higher at SGD15 – SGD20.
Navigate on the pricing bubbles to view the product images within the price range.
Cotton On – Price Range within SGD10 – SGD15
H&M – Price Range within SGD15 – SGD20
Based on the product visuals, both retailers are offering similar styles of jersey tops. Cotton On can leverage this opportunity by pricing its products slight higher to match H&M’s.
For a more detailed explanation on OTB, refer to the merchandise planning chapter of the Omnilytics Fashion Academy and receive a free template to guide your planning.
Mitigate the possibilities of deadstock or underselling by managing and adapting your OTB for any scenario. From the examples above, the Omnilytics dashboard can not only help in discovering why an overbuying or underbuying situation can occur but also the ways to overcome it.
Hope you found this article helpful! If you have any questions or would like to explore the Omnilytics dashboard further, feel free to reach out to your respective Client Success Manager.