Question
Explain the importance of sales forecasting in the retail business, outlining the different factors that are considered when making these forecasts
Answer :
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Skip in 10
Sales forecasting is an important managerial activity in retail business because it helps retailers estimate the quantity and value of products that are likely to be sold during a future period. In Buying and Merchandising-I, sales forecasting is particularly significant because buying decisions, merchandise planning, inventory levels, pricing, promotions and allocation of products depend heavily on expected sales. A retailer must ensure that the right merchandise is available in the right quantity, at the right time and at the right place. An accurate sales forecast helps achieve this balance and reduces the risks associated with overstocking and understocking. Sales forecasting refers to the systematic estimation of future sales for a particular product, product category, store, market or retail business over a specified period. Forecasts may be prepared for a week, month, season, quarter or year. Retailers may forecast sales in terms of units, revenue or both. For example, a fashion retailer may estimate the number of shirts, trousers and dresses expected to be sold during the festive season. Similarly, a supermarket may forecast the expected demand for groceries during a particular month. The forecast provides a basis for developing the merchandise plan and determining future buying requirements. One of the most important uses of sales forecasting is merchandise planning. Retailers have limited financial resources and cannot purchase unlimited quantities of merchandise. Forecasting helps buyers determine what products should be purchased and how much should be purchased. If expected sales are high, the retailer can place larger orders and ensure adequate availability. If expected sales are low, the buyer can reduce purchases and avoid unnecessary investment in inventory. Sales forecasting also helps in inventory management. Maintaining the appropriate inventory level is essential in retailing. Excess inventory increases storage costs, blocks working capital and may result in markdowns, particularly for seasonal and fashion merchandise. On the other hand,
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