This page is for a domestic retail buyer or planner who has to explain why a retailer decides how much it can spend for a whole season before it decides what to spend that money on. At work, a buyer who has not planned a season budget in advance can commit to a style that looks attractive on its own, only to discover there is no money left for a better style later in the season. This lesson mainly teaches the money flow: it shows how a retailer's open-to-buy, its season budget minus what it has already committed, decides whether a new style can be bought at all, before the style's own margin is even considered.
Cedar & Co., a local domestic brand with 12 shops that buys from Delta Garments on 60-day open account, sets a season budget of USD 120,000 for a category of T-shirts equivalent in value to Order A. Omar, the owner, has already committed USD 96,000 of that budget to earlier styles this season. Without this skill, a buyer approves a new style purely because its own margin looks good, without first checking whether the season budget has any open-to-buy left to spend on it.
You need: lesson T19-C01-L01, which shows how a retailer's own margin is calculated against its own shop price.
By the end of this lesson you can:
Not covered here: the cost of stock that does not sell at full price (lesson T19-C01-L04) and combining open-to-buy with margin and markdown in one worksheet (lesson T19-C01-L05).
| Term | Meaning |
|---|---|
| Open-to-buy | A retailer's season budget minus its committed spend: the amount still available to commit to any range. |
| Committed spend | The value of purchase orders a retailer has already confirmed against its season budget. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Reorder | A repeat purchase order placed against a style the retailer has already sold before, based on its own forecast rather than a new buyer commitment. |
| Wholesale price | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Consignment stock | Stock a supplier keeps ownership of while it is physically held at the factory, until the factory uses it. |
A retailer that plans by Make to Stock sets a season budget for what it expects to spend on a category, then subtracts every purchase order it has already committed to reach its own open-to-buy: the amount still free to commit. A new style's own margin only matters once open-to-buy confirms there is room to spend on it at all; a style with an excellent margin cannot be bought if the season budget is already spent. This ordering, check the money available before judging the style, is what protects a retailer from running out of budget partway through a season.
A buyer meets several shapes of open-to-buy across a normal working year, and checking it correctly in each one prevents an attractive style from being approved with no budget actually behind it.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Make to Stock domestic buying against a forecast | Cedar & Co. commits its own season budget against its own sales forecast, before any final customer has bought anything. | The forecast itself, not only the committed spend, can turn out wrong, so open-to-buy must be reviewed as actual sales come in, not only set once at the season's start. |
| Make to Order export buying against a confirmed buyer | Northline Apparel commits spend to Delta Garments only once its own retail customer, such as Fairway Stores, has placed a confirmed order. | Open-to-buy still applies, but the commitment follows a confirmed sale rather than a forecast, which lowers the risk of committing spend that never sells. |
| A reorder placed on a style that already sold well | Cedar & Co. reorders a T-shirt style equivalent to Order A once it sells faster than forecast in its shops. | A reorder still draws down open-to-buy exactly like a new style; strong early sales do not create extra budget on their own. |
| A season budget reallocated between categories | Omar reallocates open-to-buy that was set aside for one style to a different, better-performing style instead. | Reallocation changes which style gets the remaining open-to-buy, but it never creates new open-to-buy beyond the original season budget. |
Cedar & Co. set a season budget of USD 120,000 for its T-shirt category and has already committed USD 96,000 across earlier styles. A supplier proposes a new style, priced equivalent to Order A's own retail chain (a landed cost equivalent to USD 3.70 per piece, wholesale USD 8.00, and a strong projected margin), that would need a purchase order of USD 30,000 to buy the quantity Omar wants. Omar likes the style's own margin, but has to check the season budget before approving anything.
The new style is short by USD 6,000 against Cedar & Co.'s own remaining open-to-buy. Omar cannot approve the full quantity without either reducing the order, reallocating open-to-buy from a weaker style already committed, or asking for a season budget increase, none of which the style's own attractive margin can fix on its own.
The methodA common mistake is judging a new style purely by its own attractive margin and approving it before checking whether the season budget has any open-to-buy left. A style with a 59.8% margin, equivalent to Fairway Stores' own figure on Order A, is still unaffordable if the season's committed spend has already used up the budget. What this costs a retailer that gets it wrong is real: approving styles in the order they are proposed, rather than against the remaining open-to-buy, can leave a retailer overcommitted mid-season, forced to cut a later, possibly better-margin style entirely because an earlier, weaker style already used the budget it needed.
A retailer plans how much it can spend before it decides what to spend it on. The season budget is the total available; committed spend is what has already been promised to suppliers; open-to-buy is the difference between the two, the money still free to commit. A new style's own margin only matters once open-to-buy confirms there is room to buy it at all. A retailer that checks a style's margin first and its budget second can end up promising more money than it actually has left, forcing a cut to a later style instead.
Cedar & Co.'s season budget for its T-shirt category is USD 120,000, with USD 96,000 already committed. A supplier proposes a new style, equivalent in value to Order A's own chain, requiring USD 30,000 to buy at the quantity proposed. The style's own projected margin is 59.8%, equivalent to Fairway Stores' own figure. Omar has one week to respond before the supplier's own production slot is offered elsewhere.
Here is the note Omar actually wrote to his own buying team:
Can Omar approve the new style at its full proposed quantity? Decide before opening the answer.
No, not at the full proposed quantity. Two figures in Omar's own note decide this.
First, Cedar & Co.'s own open-to-buy is USD 24,000. That is the season budget of USD 120,000 minus the committed spend of USD 96,000, and it is USD 6,000 short of the new style's own USD 30,000 cost.
Second, the style's own 59.8% margin does not change the budget available. A strong margin makes a style worth buying if there is room in the budget; it cannot create USD 6,000 of open-to-buy that does not exist.
Omar's options are to reduce the new style's own quantity to fit within the USD 24,000 open-to-buy, to reallocate committed spend away from a weaker earlier style, or to request a season budget increase before the supplier's deadline. Approving the full quantity without one of those three steps would overcommit the season budget by USD 6,000.
Using this lesson's own illustrative figures:
An overcommitment of USD 6,000 against a USD 120,000 season budget is a 5% overrun, small enough to seem manageable on one style alone, but a retailer that repeats this mistake across several styles in the same season can overcommit its total budget by a much larger amount, forcing rushed cuts to later, potentially better-margin styles once the shortfall is discovered.
Open the course workbook's "Open-to-buy" sheet. It lists the season budget, every committed purchase order, and calculates remaining open-to-buy automatically. Enter a new style's own required spend to see immediately whether it fits inside the remaining open-to-buy, before its own margin is even reviewed.
[Download the Retail profitability worksheet](../../templates/T19-C01-retail-profitability-worksheet.xlsx)
1. What does open-to-buy measure?
2. A retailer has a season budget of USD 50,000 and has committed USD 42,000. A new style needs USD 5,000. Can it be approved from open-to-buy alone?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Open-to-buy | الرصيد المتاح للشراء | Budget disponible (open-to-buy) | Alıma açık bütçe (open-to-buy) | A retailer's season budget minus its committed spend: the amount still available to commit to any range. |
| Committed spend | الإنفاق الملتزم به | Dépenses engagées | Taahhüt edilen harcama | The value of purchase orders a retailer has already confirmed against its season budget. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Reorder | إعادة الطلب | Réassort (réapprovisionnement) | Yeniden sipariş | A repeat purchase order placed against a style the retailer has already sold before, based on its own forecast rather than a new buyer commitment. |
| Wholesale price | سعر الجملة | Prix de gros | Toptan fiyat | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Consignment stock | مخزون أمانة | Stock en dépôt | Konsinye stok | Stock a supplier keeps ownership of while it is physically held at the factory, until the factory uses it. |
You now know a retailer sets a spending limit before choosing any style. The next lesson moves to what happens when stock bought inside that budget still fails to sell at full price. Back to the course map