4 Things to Forecast for Better Retail Planning
Every retailer struggles with accurate forecasting. How many of a particular product should you order? How much should you spend on merchandising for a particular season? Which trends will dominate next year? These are important questions no matter what kind of retail operation you are running. The tools you use to help you forecast important KPIs you are tracking are as important as the forecasts you want to make. But let’s talk about those. Here are 4 key performance indicators every retailer should forecast in order to plan for the next cycle.
- Stock levels – There are different models of forecasting for stock levels. There are short-term and long-term forecasting models, but the end goal is to determine how much stock you need on hand at any given time. Quantitative forecasting allows you to use past sales data to predict future demand. The past, however, does not always predict the future, but the more data you use in your forecasting, the more accurate you can expect your calculations to be. Qualitative forecasting is less precise but is used to predict demand based on market dynamics, economic conditions, and other factors that are difficult to measure. Whichever method you use, you need a tool to help you more accurate predict product demands so that you can stock the right product in the right amounts.
- Budget – It’s not just important to forecast stock levels and product demand, but it’s important to forecast your business operations budget, as well. That includes a number of factors. At the end of the day, you must budget for expenses and expected revenue. Many retailers use a 13-period calendar where each period is 4 weeks in length. It allows for flexibility in your budget forecasting as you can break down each time period and plan short-term and long-term. If your retail business is growing, budget planning is often easier and a straight-line methodology is helpful. If there are fluctuations in your revenues from one time period to another, you may use a moving average or linear regression model for your forecasting.
- Sales – Sales forecasting is important for all retailers. Planning for product demand is one thing, but if you can’t sell the merchandise, holding it in stock could be counterproductive.
- Online growth – In 2019, online retailing is every bit as important as brick-and-mortar retail. If you’ve established a web presence, you should forecast the growth of your e-commerce sales and revenues. To get a more accurate picture of your online business, forecast online retail growth as a percentage of total retail. You want to know if your e-commerce is growing faster, slower, or at the same pace as your total retail operation.
When it comes to retail planning, it’s important to choose the right forecasting models for your business and to measure the right data to make the best predictions.