November 3, 2022

Retail Terms Every Modern Retailer Should Know

Authors

Eytan Daniyalzade
CEO & Co Founder

Table of Contents

When the only thing that’s constant in this industry is change, we know how hard it can be to keep up with all the latest retail lingo. That’s why we’ve broken it down into this list that includes the most important retail terms to know. Whether you’re a newbie or just looking to refresh your knowledge, these terms are key in the industry. 

Product Related Terms and Identifiers

Retailers use a slew of different identifiers to describe products and variants.

Color Choice (CC)

  • A customer's unique style-color choice (e.g., Blue Crew Neck vs. Red Crew Neck) independent of sizing.

Continuity Product (same as Key Item, Never Out-of-Stock, Basics)

  • Basic products that are sold year after year with little variation.
  • These are often managed automatically, with little intervention from the buyer. T-shirts, socks, etc. are good example of these. Many buying platforms will have a key item management capability to manage these.

Seasonal Products (same as Fashion, Newness)

  • Products that are more appropriate for a limited time-frame or season. Fashion items are most often seasonal products.

Style Number (Style #)

  • A unique identifier describing the style of the product. Many retailers use Smart Style Numbers, that are composed of the concatenation of various attributes of the product.
  • An example style # from a multi-brand retailer is gucci-poolsliders-ss-21, which indicates that the products are Gucci products, of type pool slider, that are in the spring / summer collection for 2021.

Stock Keeping Unit (SKU)

  • SKUs are unique identifiers for the different variants of the product. Since these describe the most specific sellable unit, both inventory and sales should be tracked in terms of SKUs, hence the name stock keeping unit.

Variant

  • Different color / size combinations of a product. For example, the "Oxford Shirts" could be a product, and the variants would be the different color (say White, Navy and Black) and size combinations. In this example, some example variants would be: Oxford Shirt-White-Small or Oxford Shirt-Black-Large

Supply Chain Related Terms

Case-Packs (same as Carton Quantity)

Case-packs are pre-configured packs of the same SKU within a case. If the case-pack for a White SM Shirt is 5, it would mean that the vendor would be providing 5 of these shirts within a case, and that is the smallest shippable quantity by the vendor.

Vendors typically do Case-Packs to reduce the handling costs of SKUs. Case-packs can either be broken in a distribution center before sending eaches to the stores, or can remain unbroken which would mean a case of goods would be sent to a store.

Delivery Window

  • Start / end dates for each delivery.
  • This should be captured along with the assortment plan, so that the relevant parties know when the products will be hitting the store.

Drop

  • Some brands deliver all the SKUs in one go but other brands can deliver 10 SKUs in with drop 1, 10 SKUs with drop 2, etc.

End Date

  • The last day a product is available for ordering (or for sale).
  • This is particularly relevant for continuity products that are sold year after year. If you want to terminate that product, you place an end date so that the system stops ordering it.

First-In, First-Out (FIFO)

FIFO is a type of inventory management strategy where a retailer uses the product that has been on the shelves the longest to fill an order. This method is used in an effort to ensure that the business does not lose money if the product expires or falls out of demand over time. A business such as a grocery store may follow this strategy to ensure they don’t lose profit on foods that expire (i.e., keeping foods that will expire sooner more accessible on the shelves so that consumers purchase and use those before their expiration rather than products that have more time to expire and can be purchased later).

Last-In, First-Out (LIFO)

LIFO is an inventory management system alternative to FIFO where a business will sell their most recently acquired product. With LIFO, a business will use today’s prices to calculate the cost of goods sold (instead of the actual cost paid for the goods that were sold). This is usually used for products that don’t perish or become obsolete, such as gas or pharmaceutical products. LIFO generally reduces overall profit and is commonly used by businesses to minimize the amount of taxes they need to pay on reported profits (although you will eventually pay the same amount in the long term).

Launch Date

  • When a particular product will be hitting the stores.

Market Week / Buy Week

  • It is the time-frame during which brands (or suppliers) open up their showrooms for retailers to visit and place orders.

Pre-Packs

Pre-packs are multiple-sizes of a particular choice added in a pack for inbound fulfillment to DC and outbound to stores. The goal is to reduce cost of handling for the retailer. A typical pre-pack for a shirt could look like (1 SM, 2 M, 2 L, 1 XL) making a pack of 6 eaches. In this case, the retailer would typically send the pre-packs to the stores as they are and not break the pre-packs in a warehouse / fulfillment center.

Procurement

In retail, procurement is the process of acquiring and buying the products or services your business will sell or provide. If your business manufactures its own goods, procurement can also mean finding and purchasing the parts and materials you need to make the products. This process can also entail the purchasing of goods and services that are needed for your company’s daily operations. Although you may see “procurement” and “purchasing” used interchangeably, it’s important to note that procurement can also include activities in the buying process beyond just purchasing (for example, processing payments, approving expenditure requests, etc.).

Special Make Up (SMU)

Special make-up is when a Brand (i.e. supplier) manufactures an item that is special for a retailer. SMU orders typically have Minimum Order Quantity (MOQ) restrictions associated with them.

Supply Chain

The retail supply chain encompasses everything involved in getting your products to your customers. It includes the people, resources, technology, and processes that come together in order to create and distribute a product or service to the consumer. For example, a typical supply chain may start with inventory management and the selection or design of product offerings. It typically also includes packing and shipping considerations and the process for returns. Supply chain management refers to the act of coordinating all of these moving parts, from supplier relationships to warehousing and more.

Inventory Terminology

Allocation

Allocation is a term used in retail inventory management that describes the tracking and distribution of products to a retailer’s various store locations (i.e., their distribution network). The goal of merchandise allocation is to maximize sales and avoid markdowns as much as possible.

Available To Promise (ATP)

Number of units that can be promised to the customer. Let's say that you have 0 units available on stock currently, but you will be receiving 10 more units later today. Assuming that you can fulfill incoming orders tomorrow, your Available to Promise (ATP) inventory would be 10, since you can fulfill new orders with the incoming order. Along with Available to Sell (ATS), Available to Promise (ATP) are better measures to use while determining which products to mark as in-stock on their website.

Available To Sell (ATS)

Number of units available on hand to sell. This is especially important when there is a big time period between when a Sale Order (SO), i.e. customer order happens, and when it gets shipped. During this period, the physical inventory will not be reflecting these SOs, since they haven't been shipped yet, but it is best for the retailer to stop taking new orders on this inventory, since that would run the risk of running out of stock on these items. Therefore, it is best practice for a retailer to use either Available to Sell (ATS) inventory or Available to Promise (ATP) inventory when determining which products to mark as in-stock on their website.

Available To Ship (ATS)

  • When brands have products in their warehouses that are available to ship to retailers immediately.
  • This is more important within in-season planning, where retailers could request more products if they are selling out.

Cover Level

  • This tells you the number of weeks of sales you would be able to support with the inventory at hand. Typically measured in weeks, but can also be measured in days or months.
  • Ideally cover level should be low enough to reduce your inventory cost and high enough to protect you from disruptions in your suppliers.

Lead Time

  • The time it takes to receive a SKU after ordering it from the supplier. Lead times in fashion are typically measured in weeks, but they could also be referred to in days or months, depending the type of product.
  • Lead times will vary depending on the supplier (whether it is a manufacturer or distributor) and the complexity of the product.
  • Nearshore manufacturers or distributors could supply a product in as little as 2-3 weeks, but manufacturing a product in Asia and getting it delivered could take as long as 6-9 months.

Minimum Order Quantity (MOQ)

  • The minimum number of units that the supplier requires to manufacture or supply a particular product. An example might be, a supplier not supplying orders of a white T-shirt if the order is less than 100. Suppliers set a MOQ, because there is a fixed overhead of fulfilling each order.
  • MOQs could be for a particular style, a particular color or for an overall order.

Order Cycle

  • The time period between two replenishment cycles at a retailer. This is typically measured in weeks, but could also be measured in days or months depending on the category of the retailer.
  • For example, if a fashion retailer replenishes their core products once a month, then the order cycle would be 1 month.

Out-of-Stock Rate

  • This gives the percentage of missed sales opportunities on a product or category for the retailer. There are different ways to measure this. Given the challenge of capturing every sales opportunity, retailers use other proxy metrics to measure this metric. A typical approach is to look at the percentage of days that a particular SKU had no stock available at the point of sale.
  • For example, if a product is meant to be selling for 365 days, and in the trailing year, it was out of stock for 10 days, then the out-of-stock rate would be 10 / 365 = 2.7%
  • Another typically used metric is called in-stock rate, and that is equal to 1 - Out-of-Stock-Rate.

Retail

  • Simply put, retail is the selling of products to a customer. This is usually a small transaction (as opposed to large-scale wholesale transactions) and the consumer buys this product for their own personal use.
  • Retailing refers to the processes involved in the selling of goods to consumers in stores, as well as the processes involved in providing services to consumers in physical locations such as repair shops, restaurants, etc.
  • Lastly, the retailer is the business or person selling the products in exchange for compensation in an effort to make a profit.

Safety Stock

  • Additional inventory to maintain to shield the business from supply and demand fluctuations. Best way to think about Safety Stock is in forward weeks of supply. If a retailer is maintaining 3 weeks of safety stock, it means that, that retailer is aiming to never dip below 3 weeks of inventory, and that safety stock makes sure that they don't run out of stock if customer demand turns out higher than expected, or if there are delays (or out of stocks) from suppliers.
  • Setting a safety stock target that takes into account deviations on sales forecasts and lead times is critical to ensure a low out-of-stock rate for a retailer.

Wholesale

  • Selling products in bulk quantities to other businesses or even other retail stores is known as wholesale.
  • A wholesaler business may buy products directly from a distributor or manufacturer to resell, or they may produce the goods themselves. Purchasing from a wholesaler is cost-effective because they can keep shipping and handling times/costs low by requiring a minimum amount of products for each order.
  • Retail shops will then alter the products (for example, by adding branding) and charge more for the goods they buy from a wholesaler in order to make a profit.

Planning Terminology

Annual Operating Plan (AOP)

This is the plan set for the business at the beginning of the year. Usually set at the beginning of the year and not changed.

Assortment Planning

Assortment planning is a practice where retailers choose which products to keep in their inventory for the upcoming season. During this process, they consider and select both the number of product categories they plan to sell as well as how many product types will be available within each category. Assortments can be categorized as shallow (department stores that offer a bit of everything like Target) or deep (specialty stores that focus on certain products with lots of options for each product type like Ulta focuses on beauty products).

Bottom Up

Bottom-up selling is another sales strategy that is more common in business-to-consumer sales. This strategy targets the direct users of the product or lower-level management and often results in smaller sale amounts than top-down strategies. With this approach, it is smart to make sure the product adoption process is relatively easy and low cost.

Forecasting

Forecasting refers to the use of past data and market research metrics to anticipate the future of consumer behavior. This process usually accounts for seasonality in certain markets and works to identify purchasing patterns that will likely continue in the coming months or years. These predictions can often translate to more efficient amounts of inventory being held and stocked on shelves, as well as effective pricing of goods and long-term success for the business.

In-Season Planning

Adjustment of the plans you have in place based on the latest data in-season. Typically done as a part of the open-to-buy management process.

Middle Out

The middle-out approach combines both top-down and bottom-up sales strategies. In merchandise planning, the ‘middle’ in middle-out usually refers to middle management.

Open-to-Buy (OTB)

OTB, or open-to-buy, is a merchandise planning formula that allows retailers to define a specific budget for future inventory orders over a set time frame. Having an OTB plan is an effective way to ensure you always have a balanced amount of available stock (not too much or too little) to meet your consumers’ demand. Toolio offers an Open-to-Buy Template that bases projections for the upcoming year on the previous year’s performance. This template can help you utilize the OTB formula and organize your plans, allowing you to overcome the challenges of maintaining the right amount of inventory for positive cash flow.

Pre-Season Planning

Creating a plan before the beginning of the season. Typically done 6-18 months ahead of the start of the season. How far in advance you do this planning process will depend on your lead times and the length of your product development process.

Purchase Orders

A purchase order is an official contract between a buyer and a seller, created by the buyer before their purchase is made. This document includes a variety of important order details, such as the number of products needed, product type specifications, and payment and delivery information. Purchase orders are very common for small businesses buying large amounts of products in bulk, and these orders can be specialized to be recurring if needed or if the relationship between buyer and seller is particularly strong. Check out Toolio’s Purchase Order Template for a centralized location to track the purchase orders you want to send to vendors and have sent to vendors.

Scenario Planning

An essential part of operating a retail business, scenario planning allows you to consider various ‘what-if’ situations and how your business can adequately respond to them. One key factor to note is that scenarios in this type of planning are events that could realistically happen, and are different from one another. Planning for negative situations that disrupt regular business flow should help improve your retail company’s overall resilience, team coherence, decision making, and structural capabilities. The COVID-19 pandemic is a great example of a type of scenario that could have been considered by businesses several years ago. In this scenario, a business would ideally consider what resources would be needed to accommodate rapid changes in consumer behavior and how team members would need to adapt to sustain business growth.

Seasonal Assortment

Seasonal assortment, or seasonal merchandising, is the strategy of keeping and managing inventory in alignment with seasonal trends and fashions in your industry. This could refer to traditional seasons such as summer and winter, holiday seasons, recurring trends that happen around the same time every year, or trending fashion styles. Using a retail calendar can also help you keep track of important dates to your specific retail market and help you plan for how your assortment may need to change well in advance.

Top Down

Top-down is a type of established sales strategy where a product is positioned to sell to the leadership or executives of a potential customer. This is a popular approach for products that can be used throughout a large company, especially in B2B sales.

Working Plan (WP)

This is the latest plan adopted by the business based on the latest learnings on sales performance.

Weekly Sales, Stock and Intake (WSSI)

WSSI stands for aWeekly Sales, Stock and Intake report. This is a report used for planning purposes to understand Sales, Inventory and Purchase Order over time, to understand stock levels and plan out Purchase Orders. WSSI is also known as an Open to Buy, and is a term used more often in the UK vs. Open to Buy being a terminology used in the US.

Curves

Retails and planners rely on curves or ratios to determine optimal levels of inventory to hold or purchase. Below are typical curves that are used in retail.

Color Curve

Color curve gives the ideal breakdown between different color variants of a style. This is calculated using historical demand ratios. A sample color curve can look like:

  • Black: 40%
  • White: 30%
  • Navy: 20%
  • Gray: 10%

Sale Curve (same as Seasonality Curve)

Sale curve describes the week-over-week change in demand on a particular item (or a collection of items like class or department). This is calculated by studying historical sales rates. A sale curve would look like:

  • Week 1: 2%
  • Week 2: 3%
  • ....
  • Week 52: 5%

Size Curve

Size curve gives the ideal breakdown between different size variants of a color-choice. This is calculated using historical demand ratios. A sample size curve can look like:

  • XS: 10%
  • S: 15%
  • M: 25%
  • L: 25%
  • XL: 15%
  • XXL: 10%

Activities

Merchandise Reporting

  • Merchandise reporting is the creation of regular merchandising reports.
  • These reports inform your business about the products that are on the shelves in physical stores. This reporting practice is a helpful way to keep tabs on inventory availability and avoid out-of-stock products.
  • Merchandise reporting may include collecting details such as records of how much inventory is on the shelves and in the backroom, how many new product units have been ordered and when, what discounts are applied to the product and how long have they been in effect, what the quality of available products is like, and more.
  • For a centralized location for your merchandising report and financial planning, try Toolio’s Merchandise Planning Software.

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Receipt Activity

  • Anything that impacts the future inventory position.
  • Examples are, placing a buy, cancelling a purchase order (PO) or moving the delivery date for a PO.

Sales Activity

  • Any retailer activity that will increase or decrease sales, hence change inventory position (e.g. markdowns, marketing, reallocation, etc.).

Ready for the next step?

Check out how to apply these terms in our list of basic retail math formulas to know.