Developing the Sales Forecast

In the words of Peter Drucker the trick to anticipating the future is not to determine what is likely to happen but what has already happened that will create the future. Forecasting involves predicting what the consumer may do under a given set of conditions. A sales forecast may be made by the merchandiser based on the targets given by the top management or may be handed down by the top management itself, depending on the retail organization. A sales forecast is the first step in determining the inventory needs of the product or category.

Forecasts are typically developed to answer the following questions:

1) How much of each product will need to be purchased?
2) Should new products be added to the merchandise assortment?
3) What price should be charged for the product?

A Sales forecast is usually made for a specific period of time, this may be weeks or season or a year. A forecast may be for a short term i.e. up to one year, or for a long term i.e. for a period of more than a year. The person who is to make the forecast for the product group or category needs to be aware of the changes in tastes an attitudes of the consumers, the size of the target market and the changes in their spending patterns.

The process of developing sales forecasts involves the following steps:

Reviewing Past sales:

A review of the past sales records is necessary to establish if there is any pattern or trend in the sales figures. A look at the sales figures of the past year for the same period would give an indication of the sales in the current year, given that the conditions are constant.

Analyzing the changes in the Economic Conditions:

It is necessary to take into account happening at the economic front as this has a direct link to the consumer spending patterns. Economic slowdowns, increase in unemployment levels etc., all affect business.

Analyzing the changes in the sales Potential:

It is now necessary to relate the demographic changes in the market to that of the store and the products to be sold.

Analyzing the changes in the marketing strategies of the retail organizations and the competition

While creating the sales forecast, it is necessary to take into consideration the marketing strategy to be adopted by the organization and the competition. Is a new line of merchandise to be introduced, a new store to be opened or an existing store to be remodeled? All these factors need to be taken into consideration.

Creating the Sales Forecast:

After taking into consideration the above mentioned points, and estimate of the projected increase in sales is arrived at. This is then applied to the various products/ categories to arrive at the projected sales figures.

Let us now understand the process of forecasting, by talking into consideration an example of the fashion industry.

Forecasting for fashion Products:

Fashion may be termed as a style that is popular in the present or a set of trends that have been accepted by a wide audience. While forecasting fashion appears simple, it is in fact a complex combination of psychological, sociological, cultural and commercial points of view.

Typically, forecasting of fashion wear is a complicated task, as fashion products have a short life and are faced with volatility of sales. A buyer or merchandiser who has to create a fashion product – may be fashion apparel – would follow certain steps. These steps to be followed would be:

Fashion Scan: Includes understanding the fashion, as it exists in the current day and age.

Consumer Analysis: This helps in understanding the type of customers that the product is likely to target and their buying preferences.

Cultural factors: Many a times, the cultural factors have a large influence on the emergence and the adoption of any fashion. This needs to be studied and understood clearly, to enable the development of an understanding of the likely chances of adoption.