In Stock! Bad Holiday Sales Forecasts

One of the items that never seems to go out of style is the annual holiday sales forecast. Mix one part survey, one part “foot traffic” analysis, and an (un)healthy dollop of optimistic trade group spin, and the result is a cheery annual forecast.

As the WSJ noted, “A postmortem of seven leading forecasters’ holiday predictions since 2005 shows that whatever their methods, they tend to overestimate sales. Last year, following the economic crisis, even the most pessimistic forecast turned out to be optimistic.”

The problem is that it is typically Wrong. Every. Year.

Why? For a number of reasons, but mostly because we are narrative loving monkeys that do not care much for data. Incidentally, this flaw in our wetware provides a potentially huge advantage for those few moneys who like numbers. (The key word in that sentence is “potentially“).

Take for example, holiday spending surveys. We ask shoppers what they spent last year, and what they plan on spending this year. From that “data,” we then draw a big conclusion as to what sales will be this year. The issue with this methodology is we Humans are 1) bad at recalling what we spent last year and b) worse at forecasting what we are likely to spend this year.

You call that the basis for making a sales forecast?

As noted on Saturday, we do not have much of a clue how Black Friday retail sales were yet. And even if we did, we know that it is not very predictive of how the holiday sales will go.

So what do we know?

Foot traffic was up slightly. Cherry picking sales items was quite common. But we also know savings are up unemployment is up and consumer confidence is down.

Hardly the basis for a very merry retail season.

If I had to make a forecast, I would say this year will be a little better than last. Given that 2008 was the worse holiday season in 40 years, I am not too far out on a limb here. But beyond that, we really do not know much yet . . .


The Flaws in Holiday Sales Forecasts
WSJ, NOVEMBER 28, 2009

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