Forecasting Practices in Retail Industry

By Peterson, Robin T. | The Journal of Business Forecasting Methods & Systems, Spring 1993 | Go to article overview

Forecasting Practices in Retail Industry


Peterson, Robin T., The Journal of Business Forecasting Methods & Systems


Large retailers are prone to prepare both industry and company forecasts. Small retailers tend to restrict their efforts to company forecasts. Both classes of retailers prepare forecasts for the company at large and for product categories. Large firms are more inclined to prepare forecasts for other entities, such as geographic area and type of customer. Both large and small retailers produce forecasts for the long run and the short run. Small firms tend to emphasize the short run more than do the large firms.

Overall people responsible for preparing forecasts are top management and financial, marketing, and accounting executives. In small firms, top management has more of a role than in large firms. The major users of sales forecasts are top management and marketing, finance, and accounting executives. In small firms, top management is an especially heavy user. Large retailers tend to employ bottom up approaches to forecasting, and small retailers, top down. The major uses of forecasts are budgeting and planning. Small organizations are more committed to budgeting uses, while large entities emphasize planning applications.

Overall, the sampled retailers desire no more than a 15.4% error in sales forecasts. Small retailers want even more accuracy then their larger counterparts. The major methods employed by the retailer are managerial judgment, sales force composite, time series, regression, and surveys, in that order. Small firms emphasize managerial judgement and sales force composite more than the large companies. These are the findings of the study recently completed by the author.

In general, the sales forecasting process remains the same regardless of the nature of the organization. Forecasters establish objectives, decide who is to carry out each portion of the work, construct a time frame, choose the appropriate methodology, and make sure forecasts are implemented. Nevertheless, firms in specific sectors of the economy, especially industries, have unique information needs. This is reflected in forecasting procedures that are designed to satisfy firms in specific sectors.

This manuscript reports on a survey of sales forecasting policies and procedures that are employed in the retailing industry of the United States. The objective is to develop guidelines that might be useful to retailers, wholesalers, manufacturers and other institutions that are involved in financial transactions with retailers.

THE STUDY

The inquiry involved forwarding a mail questionnaire to two sub-samples: (A) large retailers and (B) small retailers. Questionnaires where developed and pretested on a sample of 15 retailers who agreed to participate in the questionnaire construction process. A subsequently developed revised questionnaire was forwarded to 350 large and 350 small retailers.

The large retailers were derived from the Fortune 1000 ranks. They were mainly large chains and some independents which were of sufficient size to be classified in the Fortune listings. Small retailers were chosen randomly from yellow page telephone books in Seattle, Los Angeles, Denver, Dallas, Kansas City, Minneapolis, Boston, Philadelphia, Atlanta, and Miami.

Each member of the sample received a postcard approximately two weeks prior to the arrival of the questionnaire. The postcard announced that a questionnaire would be forthcoming and requested the sample member to respond. Another set of postcards was sent to nonrespondents approximately three weeks after the arrival of the questionnaire, asking for their response. This effort produced 91 usable large-retailer and 108 small-retailer completed questionnaires. A second wave of questionnaires was forwarded to nonrespondents, producing an additional 21 large and 27 small responses. This brought the total number of responses to 247, yielding a response rate of 35.3%.

FINDINGS

This section reports on the findings of the survey. The findings are classified according to the questions which appeared on the questionnaire. …

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