Attributed to global competition, demand is no longer
certain in any business. Over the years forecasting has gained tremendous role
in supply chain management. Managers are increasingly looking at forecasting models
to reduce costs. Despite advancements in the field of technology, machine
learning and predictive modelling most of the organizations do a relative poor
job in incorporating uncertainty in their production and sales forecasting
process. Abercrombie and Fitch was a victim of this error. Like several others,
the analysts failed to incorporate uncertainty in demand while forecasting
their sales model.
Over the past four quarters, sales have declined by an
average of 9% every year. The decline in sales is responsible for the decrease
in the company’s stock price too. In the second quarter the stock’s declined by
6%, worse than what the analysts were fearing. The analyst’s prediction were
off by 0.6% and the same store sales declined by 10%.
Abercrombie and Fitch once the most famous brand among
teenagers is now struggling to stay in the market. Teens who once sought out
for brand names and logos are now moving towards their more individualized
styles. This is one of the major changes and has undermined Abercrombie’s
pricing power and hurt its sales. Could this be avoided had Abercrombie and
Fitch taken into account the change in consumer demand will forecasting their
sales? Abercrombie is having a hard time keeping up with their competitors such
as H & M, Forvever21 and Aeropostale etc. who are selling similar items at
lower prices. A dress on average costs 58$ at Abercrombie and Fitch whereas a
similar dress sells at 15$ at H & M. Abercrombie is trying to speed up its
supply chains to keep up with the latest trends. Due to increased proliferation
of smartphones and tablets, the ease of shopping on the internet has increased
and consumers are visiting store less frequently. This is a concern for major
retailers including the already struggling Abercrombie. This is impacting sales
at Abercrombie, which earns close to 80% of its revenues from store sales.
A precise and efficiently laid out growth demand
forecasting system is the key to keeping one’s business afloat in times of
massive fluctuations in market demand for products. The ability to identify
market trends that may lead to changes in future demand is a fantastic asset to
help businesses avoid any wasteful sales commitments. Keeping a close eye on
the trends and hiring experts who can accurately forecast demand is the key to
long term success.
This raises a question, are companies relying too heavily on
forecasting techniques and failing to incorporate changing consumer demands in
the forecasting model?
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