Retail forecasting: Research and practice

This paper reviews the research literature on forecasting retail demand. We begin by introducing the forecasting problems that retailers face, from the strategic to the operational, as sales are aggregated over products to stores and to the company overall. Aggregated forecasting supports strategic decisions on location. Product-level forecasts usually relate to operational decisions at the store level. The factors that influence demand, and in particular promotional information, add considerable complexity, so that forecasters potentially face the dimensionality problem of too many variables and too little data. The paper goes on to evaluate evidence on comparative forecasting accuracy. Although causal models outperform simple benchmarks, adequate evidence on machine learning methods has not yet accumulated. Methods for forecasting new products are examined separately, with little evidence being found on the effectiveness of the various approaches. The paper concludes by describing company forecasting practices, offering conclusions as to both research gaps and barriers to improved practice.