Case Study: Simple Forecasts

If we're going to analyze the intersection of category performance and customer performance (which - FYI - is really what our businesses all come down to), we should also be able to forecast how a category is likely to evolve next year based on current customer trends.

Here's a simple forecast I put together for Apparel Tops ... the largest category that Beans manages.

I know, small numbers ... click on it for details, ok?

Categories yield Teachable Moments. Look down the "PctDmd" column. This is the percentage of annual demand likely to be derived by four customer segments.

• 9.4% from last year's Apparel Tops AND Other Category buyers.
• 6.4% from last year's Apparel Tops only customers.
• 4.7% from last year's Other Category buyers.
• 79.5% from New/Reactivated buyers this year.

In essence, the Merchant responsible for Apparel Tops is generating 80% of his/her revenue from customers who haven't purchased in the past year.

If you know that fact, how would you work with a Marketing Professional to grow Apparel Tops? Yes, you know the answer. Hint - the answer applies to most of you.

We can see the performance difference for three twelve-month buyer segments.

• Category Yes, Other Yes = $5.98 in the next year.
• Category Yes, Other No = $4.58 in the next year.
• Category No, Other Yes = $1.44 in the next year.

If the customer didn't buy Apparel Tops last year but bought something else, the customer is worth 1/3 as much to 1/4 as much as a customer who did buy Apparel Tops last year.

Look at the demand forecast on the far right - if everything is similar to last year, the category will contract by 4.4%. No bueno.

Your Chief Merchandising Officer and Chief Financial Officer need to know what is coming ... by category. If categories are forecast to contract, inventory buys need to be adjusted accordingly.

These category analysis are darn important.