Its that time of year again.
In some countries the Christmas season can be make or break for retailers selling discretionary merchandise (the stuff we might like to own but do not need). In the few weeks of December retailers can generate as much as half their annual sales and a quarter of their profits, so it is a big risk when the forecast sales are either exceeded or not achieved.
The majority of discretionary items are made in China, therefore demand on manufacturing and shipping capacity for delivery to retailer’s warehouses by early November is intense. To ensure delivery, orders must be placed with manufacturers by at least May, so retail merchandisers must look into their crystal ball by at least February to guess sales for their product range in the following gift giving season. A fact of forecasting is the further into the future you must predict, then more error will be in the forecast.
The sales forecast is influenced by how the country’s economy may behave, consumer sentiment, buying trends and expected consumer product preferences – all areas that even the most experienced have problems getting right. Given these inputs, the forecast will most certainly be wrong.
The challenge concerns what degree of forecast error is acceptable. Order too much and more products will have to be discounted in the January sales, plus the holding cost of excess product in the warehouse, affecting profit. Order not enough and profit is lost, plus disappointed consumers unable to buy. Manufacturers influenced by seasonality have ways of minimising their forecasting risk, such as postponement; however, retailers often do not have these options as they are buying finished and packed items.
So what of December 2012? While consumer sentiment in Asia is generally optimistic, in Australia and New Zealand it is leaning towards being pessimistic; but the results were more positive when forecasts of retail sales were made. This points to a situation of not meeting sales forecasts and poor sales can further erode confidence; so what to forecast for December 2013?
