Calculating and analyzing the rhythm of sales and inventory ordering is crucial for any retail or e-commerce business. Comparing monthly, quarterly, and yearly sales metrics allows merchants to make the right decisions about what to order, how much, and when. However, using the traditional Gregorian calendar, not every month, quarter, or year matches up to the previous one.
For example, if you’re a retail or e-commerce merchant looking at sales from October 2022 and want to compare them to sales from the previous year, the data may not match up to October 2021 for a variety of different reasons. There could be a different number of weekends in October from one year to another, or different holidays, which may affect the sales data year-over-year. The key to overcoming these various discrepancies and inaccurate comparisons is known as the retail calendar.
What is a retail calendar?
Retail calendars are tools used to break down the year into 12 months and 52 weeks by defining each month as having either four or five weeks. That way, each month has the same number of weeks every year, allowing for a more accurate comparison of sales and other business information between years.
All major retail and e-commerce businesses rely on the retail calendar to gain important insight into year-over-year sales and an accurate view of their business’s overall performance. The retail calendar has multiple iterations, including the 4-4-5 calendar, the 5-4-4 calendar, and the 4-5-4 calendar. The main difference between them is the month on which the retail calendar begins. However, according to the National Retail Federation (NRF), the 4-5-4 calendar is by far the most common retail calendar used, and it’s the one we’ll be focusing on here.
What is the 4-5-4 calendar?
Created and used by the National Retail Federation (NRF), the 4-5-4 calendar divides the year into four quarters, each made up of 3 months. Each month alternates having four, five, and four weeks consecutively. For example, February (the start of the 4-5-4 retail calendar) has four weeks, March has five weeks, April has four weeks, and so on.
The 4-5-4 retail calendar makes it easy to compare sales year-over-year and set sales goals using accurate information from the previous year. Because each year is divided the same way, it aligns holidays and ensures the same number of non-weekdays in comparable months.
The 4-5-4 retail calendar begins in February for two crucial reasons.
- It places holiday sales, promotions, and returns in Q4 of the previous year, which allows merchants to start the year fresh in February for Q1.
- It also aligns with the fashion calendar, where Q1/Q2 and Q3/Q4 are divided by spring/summer (February-July) and autumn/winter (August-January) clothing releases.
The 4-5-4 Calendar is made up of 52 weeks of 7 days each, equaling 364 days total, so there is one extra day each year. Because of this, it’s sometimes necessary to add a 53rd week to the end of the calendar for sales reporting purposes, so every five or six years, there is a 53-week year.
The 4-5-4 can be used to gain accurate insight into various sales forecasting, merchandising, and business performance metrics to determine what products to purchase, how much stock you’ll need to meet customer demand, and when to submit new purchase orders. One of the most important formulas that the 4-5-4 calendar can help calculate is the Open-to-Buy budget.
Calculating your Open-to-Buy budget using the 4-5-4 calendar
Open-to-Buy (OTB) is an inventory planning strategy that helps retail and e-commerce businesses determine the purchasing budget for future needed inventory for a specific period. An OTB can be calculated in dollars or units. Based on historical data taken from the 4-5-4 retail calendar, OTB provides merchants with precise merchandising budgets to meet customer demand for a fixed sales period.
OTB can be broken down into a simple formula:
- Projected sales + Planned markdowns + Projected end-of-month inventory – projected beginning-of-the-month inventory = OTB budget
o Projected beginning-of-month-inventory. This is how much inventory (in dollar amount) you expect to have at the beginning of the month.
o Projected sales. This is how much money in sales you expect in a given month.
o Planned markdowns. These are the markdowns (in dollars) that are projected for a given month.
o Projected end-of-month inventory. This is the amount of inventory (in dollars) you expect to have at the end of the month. This amount also becomes the beginning-of-the-month inventory for the following month.
o OTB budget. This is the dollar amount available to buy more inventory at the end of the month.
In order to get accurate results from the OTB formula, merchants rely on the data they get from the 4-5-4 calendar. If you use accurate data, the OTB formula will give you the exact dollar amount you should use for purchases for each product type and department.
For example, using the data from the 4-5-4 retail calendar, if you project $10,000 in sales in a given month for a product, with $500 in markdowns, and you expect to start the month with $25,000 in inventory and end it with $20,000 in inventory, your OTB formula will look like this:
- $10,000 (projected sales) + $500 (markdowns) + $20,000 (projected end-of-month inventory) – $25,000 (projected beginning-of-the-month inventory) = $5,500 (OTB budget)
The OTB formula, combined with other data taken from the 4-5-4 retail calendar, such as inventory turnover and past sales, can help businesses accurately plan their inventory budgets and purchase orders for every product in their catalog, ensuring they have enough forward stock to carry them to the next order.
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