No retailer has a crystal ball when it comes to predicting the future, but many are now taking a closer look at the past to come up with a plan for what’s next. Known as predictive analytics, this body of techniques utilize historical data to understand consumer preferences and demand trends, and project those insights into the future.
- Use cases for predictive analytics run the gamut of retail operations, ranging from inventory management and supply chain optimization to pricing and promotional practices.
- Major retailers such as Walmart and supply chain players such as Prologis are acknowledging its importance and investing in new technologies.
- This trend is driving the growth of the overall retail analytics market, which was valued at $7.56 billion in 2023, and is projected to hit $31.08 billion by 2032, according to Fortune Business Insights,
Here are some of the ways retailers are currently using predictive analytics:
Forecasting demand
Family Dollar is using predictive analytics to refine its merchandising and assortment strategy. Last year, the discounter partnered with First Insight to produce real-time data on customer preferences with the goal of reducing markdowns and stock shortages. First Insight CEO Greg Petro said in a statement, “our analytics enable Family Dollar to anticipate demand more accurately, make smarter product choices, and ultimately, heighten customer satisfaction while driving sales.”
First Insight promotes its platform as AI-powered, putting it in league with a number of service providers that are tapping the new tech to produce predictive analytics. Syrup Tech, for example, is using AI for a practice it calls “probabilistic forecasting,” designed to anticipate unexpected demand surges and allocate product accordingly.
Watching the weather
Syrup compared what it does to weather forecasting, but for some retailers weather forecasting is the demand forecasting. Walmart is one of the biggest retailers to invest in integrating weather forecasts into its dynamic planning process. The retail giant’s inventory management system uses predictive analytics to forecast demand, and historical weather data is one of the main inputs.
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Behind this type of predictive analytics are weather forecasting services such as Accuweather, which told Retail Brew that it is partnering with retailers to give them real-time weather data to plug into their models. As Don Coash, senior account executive and meteorologist at Accuweather, explained, retailers are cross-referencing weather data with sales data to determine more precisely how much demand was lost or gained from a given weather event.
Supply chain visibility
Behind the scenes, companies such as Prologis are investing in improving the visibility of the supply chain for its retail partners. The warehouse operator and developer is partnering with a company called Crisp to integrate sales data with inventory levels. The goal, according to Will O’Donnell, managing partner of Prologis Ventures, is to help retailers get products in the right place at the right time.