Disaggregated Retail Forecasting

This paper presents an investigation of the disaggregated forecast problem that is central to retail operations profitability as it supports accurate inventory decisions on point of sales: forecasting lower than customer demand results in out-of-stock events and conversely, forecasting higher than customer demand leads to overstocks and inventory losses. The complexity of the problem is related to different aspects, including the large number of stores and products of modern retailers, the complex marketing and promotional strategies that impact customer demand, and cross-product effects that are difficult to model. We propose a method that encompasses (i) data cleansing methods for improving sales information usually available for retailers, (ii) a learning algorithm that considers marketing, promotional and cross-product variables and (iii) a structural change correction method to account for disruptions in consumer behavior. Our approach is validated using a real public dataset from a large retailer (Corporación Favorita) containing data from 54 stores and 4036 products. Our accuracy results are compared to the Base-Lift model, a widely used benchmark model for retail forecasting. Results show that our proposed approach yields improvements up to 26.72% in accuracy metrics, outperforming conventional forecasting models. The results of a simulation conducted with the aim to quantify the advantage of more accurate forecasting on inventory performance show a 45.83% reduction in stockouts and 7.51% reduction in stock on hand. Finally, it is also important to highlight that the approach itself has a high degree of automation, which is an important requirement for modern retailers.