Open-to-buy explained: how fashion retailers budget their buying
Open-to-buy tells a buyer how much stock can still be purchased without breaking the plan. Here is how it is calculated, used and commonly misused.
KEY TAKEAWAYS Summary by the editors
- Open-to-buy is the purchasing budget left for a period after planned sales, markdowns, target closing stock, opening stock and existing orders are accounted for.
- Planned purchases equal planned sales plus planned markdowns plus planned closing stock, minus opening stock; open-to-buy deducts orders already placed.
- Open-to-buy should be tracked by delivery month and reforecast regularly as actual sales come in.
- Holding back part of the budget for in-season buying lets retailers chase winners, which depends on brands being able to supply re-orders.
- Understanding a retailer's open-to-buy position explains much of buyer behaviour, from trimmed orders to mid-season re-order requests.
Every buying appointment ends with the same question: can we afford it? Open-to-buy is the discipline that answers it. It tells a buyer how much merchandise can still be bought for a given period without overshooting the inventory the business has planned. Done well, it protects cash, margin and freshness. Done badly, it leaves a retailer either stuck with more stock than it can sell at full price or without the newness customers come in for.
What is open-to-buy?
Open-to-buy (OTB) is the budget available for purchasing merchandise in a given period, usually a month, after accounting for planned sales, planned markdowns, the stock already on hand and the orders already placed. It is a living number. It shrinks as orders are placed and changes as actual sales come in ahead of or behind plan.
Retailers typically plan OTB by department, category or class, and sometimes by brand. Many work at retail value because that is how sales are planned, then convert to cost for purchasing and cash flow.
How is open-to-buy calculated?
The standard formula starts from the stock a retailer wants to hold at the end of the period:
Planned purchases = planned sales + planned markdowns + planned closing stock, minus opening stock
Open-to-buy is then planned purchases less any orders already placed for delivery in that period, usually referred to as stock on order.
| Line | Amount |
|---|---|
| Planned sales | 100,000 |
| Plus planned markdowns | 10,000 |
| Plus planned closing stock | 250,000 |
| Subtotal | 360,000 |
| Less opening stock | 240,000 |
| Planned purchases | 120,000 |
| Less stock on order for the month | 90,000 |
| Open-to-buy remaining | 30,000 |
In this illustrative example the buyer still has 30,000 at retail value to spend for the month. If sales run ahead of plan, closing stock will be lower than expected and OTB for the following months rises. If sales fall behind, stock builds up and OTB must be cut, often by cancelling, reducing or delaying orders.
Why does open-to-buy matter so much in fashion?
Fashion combines long lead times with short selling windows. A buyer commits to much of a season months before the first customer sees it, and unsold stock loses value quickly as the season progresses. OTB is the mechanism that links those early commitments to the financial plan.
- Cash control. Inventory is usually a retailer's largest use of working capital, and OTB keeps commitments within what the business can fund.
- Margin protection. Overbuying leads to markdowns; OTB limits that risk at the point of purchase.
- Freshness. Reserving budget for later deliveries keeps new product arriving through the season.
- Accountability. It gives buyers, planners and finance a shared number to manage against.
How do buyers hold back budget for in-season buying?
A common practice is to commit only part of the OTB at pre-order and keep the rest open for in-season decisions. That reserve funds re-orders of styles that are selling, faster-moving trend pieces and opportunistic buys from brands with stock available.
How much to hold back depends on the category and on the supply options available. Basics and continuity lines with reliable replenishment can be bought closer to need. Seasonal fashion with long lead times usually requires a larger upfront commitment. The ability of brand partners to supply re-orders from stock quickly is one of the main factors that allows a retailer to keep more budget open.
What are the common mistakes with open-to-buy?
- Setting the plan and never revising it. OTB is only useful if it is reforecast as actual sales arrive, typically weekly.
- Ignoring stock on order. Orders placed but not yet delivered must be deducted, or the same budget is spent twice.
- Planning at too high a level. A healthy total can hide an overstocked category alongside an understocked one.
- Chasing sales regardless of margin. Extra budget spent on low-margin or late-arriving stock can do more harm than good.
- Separating buying from planning. Buyers need to see their OTB position during appointments, not after them.
How does open-to-buy connect to the wider business?
OTB sits at the junction of the merchandise financial plan, the assortment plan and day-to-day buying. Finance sets the sales and margin targets, planners translate them into stock and purchase budgets, and buyers spend those budgets on specific styles, colours and sizes.
For brand sales teams, understanding a retailer's OTB position explains much of buyer behaviour: why an order is trimmed late in the process, why re-order requests appear mid-season, why a buyer pushes back on an early delivery, and why delivery dates matter as much as the product itself. A brand that can offer reliable deliveries and in-season availability makes it easier for buyers to spend their budget with confidence.
Frequently asked questions
What is open-to-buy in retail?
Open-to-buy is the amount of merchandise a retailer can still purchase for a given period without exceeding its inventory plan. It is calculated from planned sales, markdowns, target closing stock, opening stock and orders already placed.
Is open-to-buy calculated at cost or at retail value?
Both are used. Many retailers plan at retail value because sales targets are set that way, then convert to cost using the planned margin for purchasing and cash-flow management.
How often should open-to-buy be updated?
Most fashion retailers reforecast weekly, using actual sales and receipts. A plan that is set at the start of the season and never updated quickly loses its value as a buying control.
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