Retail sales improvement requires careful forecasting

The WSJ reported retail sales Rose 3.3%, showing signs consumers are returning to stores.  This is a great sign for the retail market as it seems a turnaround may be in the works.  Macy’s posted a 3.4% increase, Saks reported 7% and Costco 8%.  As demand begins to increase, vendors need to keep a careful eye on the supply chain.  Retail buyers have been operating on low open to buy for over a year, so inventory levels may be below where they will need to be to satisfy demand.  Vendors using EDI 852 data for forecasting need to make some careful adjustments to their forecasting model to not be caught by surprise.  Here’s why.  Forecast models use historical demand as the foundation for current year predictions, but last January was a terrible month for retail sales, so a simple look at comp year demand will give a misleading result.  To correct for this, vendors should be considering not only last year’s demand, but also the prior year’s demand and the current period trend.  By combining these three numbers, vendors will have a more accurate model and hopefully not get caught by surprise.  But even with a good forecast, we expect sales to be unpredictable for the foreseeable future, so vendors must carefully watch demand and inventory levels by analyzing the EDI 852 data weekly or even daily and making push order recommendations to their buyers.

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