Open-to-Buy Planning: A Primer for Retail and Consumer Brands

Open-to-buy is the amount of merchandise a buyer or brand is still allowed to purchase for a period, given what has already been planned and committed, and it is the control that stops buying from drifting away from sales. This guide is part of demand planning and inventory optimization, follows how to build an inventory budget, leads to reducing inventory without causing stockouts and links to how inventory decisions affect cash flow and cash flow management. The idea is simple. A company plans how much it expects to sell, how much stock it wants to hold at the end of the period, and how much it will mark down. From these it works out the total it needs to receive. It then subtracts what is already on hand and on order. What is left is the open-to-buy: the budget still available to spend. It is a standard tool in retail, and increasingly useful for consumer brands that sell through retailers, ecommerce brands and any business with seasonal or fashion-driven demand. This primer explains the formula, works a checked example from retail to cost, shows how stock-to-sales ratios set the stock target, explains why to hold back a flexibility reserve, and covers how brands can use their customers' open-to-buy to plan.

The open-to-buy formula

At retail value, the standard monthly calculation is: planned sales, plus planned markdowns, plus planned end-of-month inventory, minus planned beginning-of-month inventory, equals the planned purchases needed at retail. Subtract merchandise already on order for that period, and the result is the open-to-buy at retail. To express it at cost, which is what the buyer actually pays, multiply by the cost complement, which is the share of retail value that represents cost (one minus the initial markup percentage on retail).

The logic mirrors the inventory budget. Sales and markdowns take value out of inventory. Purchases put it in. To end the month with the planned stock, the purchases must equal what left plus the change in the stock level. Markdowns are included because they reduce the retail value of inventory without a sale.

A worked example

A buyer plans the following for one month at retail value (illustrative): sales of $100,000, markdowns of $8,000, planned end-of-month inventory of $150,000 and beginning-of-month inventory of $140,000.

• Planned purchases at retail: 100,000 + 8,000 + 150,000 - 140,000 = $118,000
• Merchandise already on order for the month: $70,000 at retail
• Open-to-buy at retail: 118,000 - 70,000 = $48,000
• Initial markup on retail: 50 percent, so the cost complement is 50 percent
• Open-to-buy at cost: 48,000 × 0.50 = $24,000

Check: the purchases of 118,000 must replace the 100,000 of sales and the 8,000 of markdowns, and lift inventory by 10,000 (150,000 - 140,000): 100,000 + 8,000 + 10,000 = 118,000. The buyer can therefore place about $24,000 of additional orders at cost for this month, and no more, unless the plan changes. If a vendor offers a tempting $40,000 buy at cost, the open-to-buy tells the buyer that taking it would overspend the plan by $16,000 (40,000 - 24,000), and that something else must give: lower sales expectations, a lower stock target elsewhere, or a different timing.

Stock-to-sales ratio

Where does the planned end-of-month inventory come from? Retailers commonly use a stock-to-sales ratio, which is the retail value of stock at the beginning of the month divided by the sales for the month. In the example, the beginning stock of 140,000 against sales of 100,000 is a ratio of 1.4. A ratio of 1.4 means the month began with 1.4 months of sales in stock. Faster categories have lower ratios and slower ones have higher ratios. A buyer sets a target ratio for each category and month from history and from the desired service level and display needs. If the target ratio for next month is 1.5 and next month's planned sales are $110,000, the planned beginning stock for that month, which is the same as this month's ending stock, is 1.5 × 110,000 = $165,000. Check: 165,000 / 110,000 = 1.5. Note how the target for this month's ending stock then rises from 150,000 to 165,000, which would lift the open-to-buy by $15,000 at retail. The stock-to-sales ratio links the stock plan to the sales plan month by month, which is why it keeps inventory in step with the seasonal pattern.

Why hold back a reserve

If all of the open-to-buy is committed early, there is nothing left to respond to what the market shows in the season. A common practice is to commit a portion of the seasonal budget before the season and hold the rest as a flexibility reserve. Consider a seasonal buy plan of $2.0 million at cost. The buyer commits 70 percent before the season, 0.70 × 2,000,000 = $1,400,000, and holds back $600,000. During the season, strong items can be reordered, new trends can be chased and weak items can be left alone. If sales are 10 percent below plan, the reserve may not be spent at all, and the inventory saved is the difference between a manageable markdown and a crisis. The right split depends on lead times. If vendors need ninety days and the season is twelve weeks, there may be little chance to re-buy, and most of the commitment must be made in advance. For items with short lead times or local production, a larger reserve is feasible.

Using open-to-buy as a brand

Consumer brands that sell through retailers can use the idea in two ways. First, brands can manage their own purchasing from suppliers using the same logic, replacing retail values with their own wholesale or cost values. The plan combines shipments forecast to customers, desired closing stock and what is already on order. Second, brands can learn how their retail customers plan. A retailer's open-to-buy is limited by its own plan, and a buyer who has spent the budget cannot take more, however good the product. Understanding the retail calendar, when the buyer's budget opens for the next season and when it is most constrained, helps the brand time its pitches, new product launches and promotions. It also explains why orders sometimes arrive late and small when a retailer is cautious: the retailer is protecting its own cash and stock position. See forecast accuracy for how to measure the effect on your own plan.

Ecommerce and omnichannel

Open-to-buy applies to ecommerce brands as well, even though they do not have stores to fill. The important differences are that there is often no fixed display requirement, so the target stock can be set by days of supply, and that demand can move quickly with marketing. The calculation is the same: expected sales and discounts, desired ending stock, minus beginning stock and open orders. For omnichannel businesses, run the plan by channel and then combine, since channels may have different margins, return rates and stock needs. Keep a reserve for channels that can accelerate, such as a marketplace or a wholesale account, but avoid committing all of the reserve to the channel with the loudest demand. See ecommerce sales forecasting.

Who owns what

The buyer or planner owns the plan and the day-to-day use of the open-to-buy. Finance owns the total budget and the approval of changes. Merchandising leaders own the assortment and the target ratios. The supply team owns the delivery timing. The cleanest arrangement has a monthly meeting at which the open-to-buy by category is reviewed, with questions about where the plan has changed, what has been committed and where the reserve stands. Changes to the plan, up or down, are approved at an agreed level, and a record is kept of why. Without this discipline, open-to-buy reports become another spreadsheet that nobody believes.

Controls and reports

A good open-to-buy report shows, by category and month, the plan for sales, markdowns, ending stock, purchases and receipts, the on-hand and on-order quantities, and the resulting open-to-buy at retail and cost. Flags highlight categories that are over-committed (negative open-to-buy) or that have large unspent balances that may need to be redeployed. A negative open-to-buy means that commitments exceed the plan. It should trigger a conversation, not be hidden. Sorting the report by the size of the overcommitment and the age of the stock helps leaders focus. Link the report to the stock aging view, since the age of existing inventory affects whether the plan for new purchases is realistic. See inventory aging reports.

Beyond retail: other uses

Manufacturers and distributors can apply the same control to raw materials and finished goods. The language differs, but the structure holds: plan the usage, plan the closing stock, subtract the opening stock and the open orders, and the rest is the purchasing budget. In food and beverage, the plan must also respect shelf life. In technology and lifecycle products, it must respect end-of-life dates. In every case, the aim is to keep commitments inside a plan that reflects realistic demand, and to keep some room for change.

Common mistakes

The first is treating the open-to-buy as a number to be used up. Spending the entire budget because it is available defeats the purpose. The second is basing the plan on last year's sales when assortment, pricing or distribution has changed. The third is leaving out markdowns, which understates the purchases needed to maintain stock and hides the cost of overbuying. The fourth is ignoring on-order merchandise that is scheduled for a different month, which creates timing mismatches. The fifth is a plan that lives only in the buyer's spreadsheet and is not visible to finance or planning. The sixth is committing everything early with no reserve. The seventh is failing to compare the plan with results at the end of the season to improve the next one.

FAQs

What is open-to-buy?

The amount of merchandise a buyer can still purchase for a period, calculated from planned sales, markdowns and stock targets, less existing inventory and orders.

How do you calculate open-to-buy?

Planned sales plus planned markdowns plus planned ending inventory minus beginning inventory gives planned purchases. Subtract merchandise on order to get open-to-buy.

What is a stock-to-sales ratio?

The retail value of beginning stock divided by the month's sales. It indicates how many months of sales are held in stock and sets the stock target.

Why keep a reserve in the open-to-buy?

A reserve lets the buyer respond to in-season trends and avoid committing all the budget before demand is known.

Can small brands use open-to-buy?

Yes. A simple monthly spreadsheet with sales, stock targets, on-hand and on-order quantities is enough to apply the logic.