How Traditional Demand Forecasting Misses Market Trends: A Use Case with Patio Furniture
How could we use our signals from the market to have an earlier indication of slowing patio furniture demand in 2022? We set out to explore the market data that caused margin hits from excess inventory.
Did you buy patio furniture this year? What about last year? If you’re like thousands of others, the answer is you likely bought outdoor furniture last year, but not this year. In this article, we explore the market data and demand signals that can be used for demand forecasting.
In Q1 and Q2 of this year, Target, Old Navy and other retailers shared that they had 20 to 30% more inventory than this time last year. They attributed a lot of this excess inventory to items consumers were no longer interested in, for example patio furniture. The impact on margins is severe. For Target, the profit margin in the second quarter dropped from 6% to 2%. We set out to explore the market data that caused this margin hit. How could we use our signals from the market to have an earlier indication of slowing patio furniture demand in 2022?
Patio Furniture Market Demand Forecasting in 2022
In the example of patio furniture, we posed ourselves two major questions:
- How could we use our base market datasets and proprietary ETLs to determine the lack of interest in patio furniture for 2022?
- How early could we identify that 2022 was going to be below 2021 and 2020 demand?
Overview of Findings
- Demand Signal Dataset: Historic Google searches 2019 t0 2022, amalgamating the data to analyze the change in searches over time. One of the many social indicators that Granularity uses to track market demand for products.
- Signal from 2020: Abnormal growth rates. Rate does not slow in March and mid-April. Peak only comes week of April 24.
- Signal from 2021: Early signs of high growth, as of February 22. Growth peaks week of March 27. Growth rate and absolute searches reach record highs as of March!
- Signal from 2022: 6-week rate of growth hits a peak March 27 and starts to slow. Signal of lack of growth by Mid-march
- Market insights are leading indicators. Receiving market demand indicators early is critical to our ability to act sooner. We likely cannot reduce orders we have placed pre-season. What actions can we take knowing slowing demand is coming?
The dataset that was chosen to be used is historic google searches - amalgamating the data from 2019 to 2022 to analyze the change in searches over time. Google search history is one of the many social indicators that Granularity uses to track market demand for products. It reflects consumer interest in each product, and generally follows demand trends reflected on social media sites. For this example, we have reviewed google search history for patio furniture from 2019 to 2022.
As seen below, it becomes clear that 2022 google searches for patio furniture did not reach the peaks of previous years. The first year of 2020 demonstrates the massive peak of interest and sales that patio furniture received at the start of the COVID-19 pandemic. It is reflected similarly in the season of 2021. The final year, this past spring of 2022, shows the significant lack of Google search activity for patio furniture – mirroring the published excess inventory woes of major retailers.
Now, the important question to understand is: How early does the growth rate increase? How does the slope of the growth rate differ year over year? We analyze the 6-week growth rate across time periods to identify how the growth rate differs each year. We use the 2019 year, pre-pandemic, as a baseline year.
By the end of March 2022 we could see that the 6-week growth for searches in 2022 is lower than previous years.
Plotting the growth rates themselves, it can be seen that the growth rate slows faster in 2022. It also becomes evident that the increase in searches in 2020 came later than prior years. We overlay our knowledge of March 2020 to infer that the pandemic impacted timing of sales for that year.
| Signal from 2019 | This is used as the baseline year. |
| Signal from 2020 | Growth rates over 200%. Rate does not slow in March and mid-April. Growth only slows week of May 1. |
| Signal from 2021 | Early signs of high growth, as of February 22. Growth peaks week of March 27. Growth rate and absolute searches reach record highs as of March! |
| Signal from 2022 | 6-week rate of growth hits a peak March 27 and starts to slow. Signal of lack of growth by mid-March. |
Signal from 2020 - Growth rates over 200%. Rate does not slow in March and mid-April. Peak only comes week of April 24.
For 2020, growth rates hit over 200% by mid-April. 2019 is showing as a baseline year. It also becomes evident that the increase in searches in 2020 came later than prior years. We overlay our knowledge of March 2020 to infer that the pandemic impacted timing of sales for that year.
Signal from 2021 - Early signs of high growth, as of February 22. Growth peaks week of March 27. Growth rate and absolute searches reach record highs as of March!
Growth rates hit over 323%. Although the absolute number of searches did not hit the highs of 2020, the early growth rate is a great indicator of the demand to come in-season.
Signal from 2022 - 6-week rate of growth hits a peak March 27 and starts to slow. Signal of lack of growth by Mid-march.
Leveraging data from Google Searches, on top of historic sales, augments the ability to make decisions about the season. February of 2022 shows growth rates much lower than February of 2021. By the end of March, the absolute number of searches is still increasing, but the growth rate has hit a peak and is declining. This would trigger an indication that it likely won't meet the peaks of previous years.
Demand Planning in Hindsight for 2022
Granularity’s external market demand indicators allows demand planners to have the ability to forecast consumer demand earlier and more accurately than before.
A demand planner with our insights would have noticed by February 2022 that the trend line for this season has the closest correlation to 2019 – pre-COVID 19 pandemic seasons. By March 2022, they would know that the season’s peak has occurred, and demand is declining, confirming the season is back to pre-pandemic levels of market demand.
Market insights are leading indicators. Receiving market demand indicators early is critical to our ability to act sooner. We likely cannot reduce orders we have placed pre-season. What actions can we take knowing slowing demand is coming?
We may not be able to reduce orders we have placed. However, using early warning signs of demand means we can start activating our other levers.
- Pricing Adjustments or Promotional Pricing - Competing on price early in the season rather than at end of season to move more inventory
- Inventory Distribution - Reducing shipments out to stores, allocating more to eCommerce channels, etc. to proactively reduce operational costs
- Marketing Positioning and Campaigns - Diving deeper on what types of furniture will be excess and assessing whether a proactive marketing campaign or new positioning can help
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