RETAIL TERMINOLOGIES

1. Open to buy: Open to buy is the dollar amount budgeted by a business for inventory
purchases for a specific time period

Formula:

OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory -
Planned Beginning of Month Inventory

2. Beginning of the month inventory (BOM): Physical inventory in the store at the beginning
of the month.

3. End of month (EOM): A term referring to either the payment of invoices due at the end of
the month in which the merchandise was shipped or the amount of physical inventory in the store
at the end of a month.

4. Stock keeping unit (SKU): More commonly known as SKU, this term pertains to the unique
identification of a particular product. It’s used in inventory management and enables retailers to
track and distinguish products from one another. A SKU represents all the attributes of an item,
including style, brand, size, color, and more.

5.Gross Margin : Gross margin is the difference between what an item cost and for what it sells.

Formula: Gross Margin = Total Sales - Cost of Goods

6. Gross Margin Return On Investment: Ratio measuring inventory profitability as it relates to

the gross profit margin earn on sales.
Formula: Gross Margin ÷ Average Inventory Cost

7.Inventory : Inventory is the merchandise a retail store has on-hand. The term also refers to the
act of counting, itemizing and recording in-stock merchandise or supplies.

8.Inventory Turnover : How many times during a period that a business sells its inventory and
replaces it.
Formula: Inventory Turnover = Net Sales ÷ Average Retail Stock

9. Sell-Through Rate: Sell-through Rate is a calculation, commonly represented as a

percentage, comparing the amount of inventory a retailer receives from a manufacturer or
supplier against what is actually sold to the consumer.
 RETAIL FORMULAS

1. Average Inventory
Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory) ÷ 2

2.Basic Retailing Formula

Cost of Goods + Markup = Retail Price
Retail Price - Cost of Goods = Markup
Retail Price - Markup = Cost of Goods

3.Break-Even Analysis
Break-Even ($) = Fixed Costs ÷ Gross Margin Percentage

4.Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory

5.Gross Margin
Gross Margin = Total Sales - Cost of Goods

6.Gross Margin Return on Investment

GMROI = Gross Margin $ ÷ Average Inventory Cost

7.Initial Markup
Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions)

8.Inventory Turnover (Stock Turn)

Turnover = Net Sales ÷ Average Retail Stock

9.Markup
Markup $ = Retail Price - Cost
Markup % = Markup Amount ÷ Retail Price

10.Net Sales
Net Sales = Gross Sales - Returns and Allowances

11.Open to Buy
OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory -
Planned Beginning of Month Inventory

12. Reductions
Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock Shortages
13.Sales per Square Foot
Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space

14.Sell-Through Rate
Sell-Through % = Units Sold ÷ Units Received

15. Stock to Sales Ratio

Stock-to-Sales = Beginning of Month Stock ÷ Sales for the Month