The Benefits and the Basics of Retail Forecasting
By Tom O'Reilly / March 2017Insights
Retail sales are expected to rise 3.9 percent in 2017, according to Kiplinger’s latest forecast on retail sales and consumer spending. That’s slightly above the growth rate in 2016 due to an uptick in merchandise sales.
To benefit from Kiplinger’s prediction for higher retail sales, your business must develop a forecasting strategy and repeatable process. Accurate forecasting is critical to success for retailers as I detailed in one of my previous Aptaris Insights article, Demand Forecasting for the 21st Century Consumer. This article will focus on the basics.
The reason retailers need to develop a discipline and process for sales forecasting is to support cash flow management and purchasing. Retail forecasts provide information to support your promotions year-round, allowing for sales volume peaks and valleys. Based on deeper customer knowledge from forecasts, retailers can add incremental sales.
Forecasts establish a balanced approach to ensure adequate inventory and merchandising strategies so that products are available when customers purchase at the store or online. With ample forecasting, retailers can invest in the right opportunities, increase inventory or expand into new product lines to maximize your competitive advantage. Forecasts also guide business planning and tracking, allowing a look at historical data to determine how past decisions impacted sales and overall business success.
Sales forecasting allows:
Customer knowledge – A more intimate knowledge of consumer purchasing habits opens opportunities to plan special promotions, as well as more targeted and relevant marketing communications.
Supply Chain Management – You can have better control over your supply chain when you can predict demand and manage production more efficiently. Not only will you manage resources more effectively, you can take full advantage of just-in-time ordering.
Marketing – An advanced look at future sales gives the marketing team time to develop and schedule promotions properly. In some cases, sales forecasts may lead to discontinuing slow-moving products.
Price Stability – Minimizing the need for markdowns and unplanned clearance events.
There are several cloud-based point of sale (POS) systems available today that can support a solid forecasting strategy. Here are simple steps:
- Establish a Baseline
Review year-to-date sales volume and compare those stats to the previous year. Determine if the current trend will continue up or down to begin establishing goals for the next month or quarter.
- Review Previous Year’s Sales
Analyze last year’s sales and revenue for information to begin creating forecasts. The forecasts will assist with inventory management and scheduling staff to support sales and operations.
- Tabulate Top Sellers
Most POS systems will provide a report with your best performing products, including sales by category or department. This data will allow you to organize your inventory order.
- Set Sales Goals
Once you’ve created your initial forecast, you can incentivize your teams to over-achieve and set higher sales goals. The key is to continuously monitor metrics so you can quickly adjust your forecast, inventory orders, staffing and other retail operations.
- Share Forecasting Info with Stakeholders
Strive to have forecasting information available for key stakeholders throughout the decision-making process. By breaking down the siloes in your organization, you will create a more accurate and comprehensive retail forecast. A well-executed forecast compiles and analyzes data across departments for greater alignment on initiatives and investments.
More Reliable Retail Forecasting
When it comes to forecasting, retailers often fall into two categories. Some organizations don’t have information available or easily accessible for precise projections. Other retailers have too much data that’s often unstructured, making the information overwhelming and difficult to use.
That’s the reason Aptaris partnered with dunnhumby, a leading customer science company, to support retail forecasting. dunnhumby leverages knowledge based on the buying habits of nearly one billion people worldwide.
The new combined Aptaris and dunnhumby solution incorporates promotions forecasting and analytics into the category managers’ daily workflow. The promotions can then be continuously re-forecasted in real time throughout the planning and execution lifecycle. The category manager can also review historical data and “what-if” multiple price point scenarios.
The Aptaris software combined with dunnhumby’s analytics arms retailers with input that’s current and more accurate across your organization. You can bypass the antiquated process of passing spreadsheets.
Instead, you can count on valuable data that goes beyond decision-making based on historical data only.
By leveraging technological advancements you can stay more in-tune with your customers and optimize business opportunities.
Accurate sales forecasting takes time and effort. Maintaining focus on the benefits and the basics of retail forecasting will go a long way to achieving success. Take a look at my previous Aptaris Insights article on Demand Forecasting Success Stories for inspiration.
Please reach out at info@GoAptaris.com for more information.
Contributed by Tom O’Reilly – President and CEO, Aptaris
Tom has a deep understanding of the retail business from both the store and vendor perspectives. He brings decades of hands-on experience in advertising and promotions including new media innovations. As an entrepreneur, he has transformed each organization he has worked with. Tom is a forward-thinking leader with a history of driving innovation, growth and profitability. As an avid reader, Tom is always enthusiastically sharing cutting-edge ideas with clients and colleagues.