Most retailers have experienced issues with running out of stock or carrying too much inventory. Effective stock control relies on smart systems and processes that help you avoid stockouts and wastage while keeping your customers happy. Retail demand planning helps businesses to be proactive and efficient in key seasons to maximise revenue opportunities.
We discuss how to forecast customer demand effectively, what’s involved and how business finance can be used to enhance your retail demand planning efforts.
What is demand planning (and forecasting)?
Retail demand planning and forecasting are key strategies for enabling businesses to predict and meet customer demand. It’s particularly crucial for retail and ecommerce companies seeking to coordinate their supply chain, manage working capital and operate efficient stock control.
If you’re subject to seasonal and market fluctuations, accurate inventory management and forecasting can be the difference between a high sales uptick and missing out on opportunities or being left with a mountain of depleted stock to shift.
Effective retail demand planning and forecasting can help you to:
- Avoid stockouts and frustrated customers
- Reduce unnecessary discounting that eats into profits
- Make the most of your working capital
- Understand sales trends and customer needs
- Improve customer satisfaction
- Boost brand reputation and maintain loyalty
Hundreds of billions of pounds in lost sales globally can be attributed to stockouts and inventory issues. Paul Boyle, CEO at Retail Insight, said this about the issue: “When items are unavailable, hidden, or damaged, the resulting lost sales can be as much as 8% of revenue – an opportunity retailers can ill-afford to lose.”
Strong demand and supply chain planning in grocery vendors, retail stores and ecommerce businesses can reduce the impact and minimise lost sales.
How do retailers forecast demand and why?
To successfully cater to customer needs and run effective stock control, you need accurate forecasting to inform key decisions. That requires sophisticated forecasting tools and techniques. With these in place, your business can better judge inventory and expenditure needs and revenue and demand trends, while implementing a more data-driven process.
Popular retail demand forecasting methods
So, let’s start with the forecasting approaches. Here are some of the most popular retail demand forecasting methods:
- Time series analysis: This method analyses historical sales data to identify patterns, including trends, cycle and seasonality impact to account for fluctuating conditions in retail.
- Scenario analysis: This forecasting approach considers hypotheticals, such as economic changes, supply chain disruptions or pricing shifts due to competitive markets or promotions. By stress-testing plans, retailers can prepare for different scenarios and predict how they’ll impact demand.
- Moving average demand: A simpler forecasting process for those with more predictable patterns and stable product sales, this approach averages sales over a certain period for broader predictions and demand trends.
- Linear regression: This popular statistical model can be applied to retail forecasting to help you compare relationships between demand and specific factors, such as price, marketing/advertising spend and seasonal conditions, and how and to what extent each factor affects sales.
- Demand sensing: For more short-term forecasting, demand sensing uses real-time data from POS systems, inventory management platforms, social signals, etc., to predict immediate demand and help retailers respond quickly to fast-changing conditions.
- Collaborative planning, forecasting and replenishment (CPFR): This collaboration framework is used by both retailers and suppliers to align planning and ensure smooth relationships. Both sides use the combined data to enable timely stock replenishment, ideal for high-volume retail operations.
These are all useful ways to predict future demand, sales and potential disruptions, based on various data sets and variables.
Choosing demand forecasting software for your business
There are various retail demand forecasting tools available to help you predict future demand and optimise inventory management, offering sophisticated analytics and predictive capabilities, many of which are now powered by AI.
When choosing demand forecasting software for your retail business, consider the following questions:
- Does the solution enable real-time data integration?
- What AI and machine learning capabilities does the platform have?
- Is the interface user-friendly?
- What is the pricing model, and are there any hidden costs?
- How easy is the platform to implement/integrate?
- Are some features only available in certain subscription tiers?
Before implementing retail demand forecasting software, identify your business needs and research different software solutions, comparing features and running through the questions above. Plus, get demos and free trials, where possible, to see solutions in action and decide whether they meet your expectations.
How supply and demand affect planning and control
Understanding supply and demand dynamics in retail helps you maintain optimum inventory levels, but harnessing data will improve your retail demand planning.
Research from Pricer revealed that inventory availability was the top in-store challenge UK retailers were looking to address in 2025 (36%), while a further 34% were focusing efforts on improving inventory accuracy. When it comes to groceries, further Pricer research found that almost a fifth (18%) of the items in UK customers’ weekly food shop were unavailable when shopping.
While demand forecasting software helps you take a data-driven approach, it requires dedicated monitoring to make the most accurate predictions.
When developing your supply and demand strategies, consider the following factors:
- Seasonality and typical peak periods
- Economic conditions in your target region
- Behavioural analysis to monitor/learn from customer trends
- Promotional activity
- Market trends and industry-specific events
- What ecommerce and retail finance solutions can help you increase sales
This will support you with comprehensive demand planning (armed with modern forecasting tools), incorporating the main influencing factors and strategic considerations, to balance supply and demand effectively.
Benefits of data-driven demand planning for retail
In today’s retail world, data insights need to fuel your activities. Here are the key ways effective demand planning can empower your retail business:
- Enhanced inventory management – helping you maintain appropriate inventory levels, reducing the risks of overstocking or stockouts.
- Minimising carrying costs – reducing the need for product markdowns or discounts to clear excess inventory.
- Increased agility – enabling you to adjust according to changing needs.
- Streamlined operations – offering cost-savings, greater efficiency and better resource allocation.
- Improved customer satisfaction – meeting demand and minimising frustration from stockouts boosts your brand’s reputation and encourages customer loyalty.
- Freeing up working capital – preventing you from tying up crucial cash in excess stock that’s required elsewhere.
Risk management, predicting business outcomes and metrics for success
Good retail demand planning includes robust risk management. Certain factors will be out of your control, but you can still put measures in place to cater for unforeseen events and mitigate risks.
How to boost risk management with strategic retail demand planning
- Leverage new technologies to predict business outcomes and detect risks
- Carry out scenario analysis to forecast the impact of different demand levels on your operations and finances
- Use demand sensing for real-time data analysis and AI-driven insights
- Diversify your suppliers to avoid being overdependent on certain third parties
- Work closely with these third parties to get the full picture of the supply chain
- Consider a safety stock as a buffer in the event of spikes in demand
- Build an emergency fund for unforeseen circumstances
- Use relevant business finance solutions to boost your working capital, remain agile or cover unexpected costs
What are the main metrics for success in efficient retail demand planning?
Understanding how to measure retail demand planning success enables you to take actions to reduce inventory stockouts, overstocking, cash flow gaps, supply chain issues, and other risks. Your data will show how often products sell, how quickly they become unavailable, how closely forecasting matches reality, etc.
Here are some of the key metrics to consider:
- Forecast accuracy (and bias): This shows how closely your predictions and assumptions match the actual demand, with the bias element highlighting issues with consistent over- or under-forecasting. High accuracy with low bias is what you’re aiming to achieve.
- Service level/fill rate: This measures the percentage of demand met without incurring stockouts. Strong service levels indicate that your safety stock, replenishment and forecasting are well aligned.
- Inventory turnover and days inventory outstanding (DIO): These metrics show how quickly your inventory is converted into sales. A low turnover means you have excess or ageing stock, while overly high turnover can lead to potential stockouts. So, you want a balanced turnover and healthy inventory levels that are closely aligned with customer demand.
- Stockout rate: This tracks how often products are unavailable due to demand exceeding expectations and inventory levels, meaning it’s a clear indicator of potential forecasting issues and replenishment risks.
- Excess and obsolete inventory (E&O): A value and impact metric for your slow-moving stock. Reducing E&O helps to improve business cash flow and increase margins.
- Promotion forecast accuracy: With promotional periods being crucial opportunities for retailers, this measurement outlines how well you predict uplift during these periods. Learnings help future promotional efforts in key seasons to be more profitable and reduce the risks of costly stockouts.
Business finance options to support retail demand planning
There are various business finance options available to support retail demand planning and inventory management. Perhaps a lump sum to ramp up activities and invest in peak season opportunities, a short-term funding option for slower periods or revolving credit facilities to ease cash flow issues?
Many flexible sources of funding for retailers are from alternative finance lenders. They can provide quicker and simpler access to finance to help small businesses scale and adapt to changing demand and market conditions, ease financial concerns and spark growth. Providers like iwoca offer flexible loans tailored to your needs, without lengthy applications or a pristine credit history.
Finance options to support retail demand planning and inventory management include:
- Unsecured loans: Short-term loans that don’t require collateral, which can usually be accessed online within a matter of days or even hours.
- Revenue-based financing: Solutions, like merchant cash advances, which provide capital to be repaid as a percentage of future card sales, meaning the facilities align with your cash flow.
- Inventory finance: Working capital funding secured against inventory to allow retailers to boost stock when required without damaging cash flow.
- Invoice finance: A quick way to unlock cash tied up in pending client invoices, getting an advance of the value to use for other operational needs.
- Trade credit: An agreement with your suppliers to receive goods in advance and pay for them later, within an agreed term of credit, to ease cash flow and help you get revenue in before large outlays.
6 ways business finance can support demand planning in retail
So, how can business finance solutions support demand planning in the retail industry? Well, using a working capital loan or a flexible finance facility can help retailers with demand planning in the following ways:
- Providing a buffer to account for unexpected demand shifts: The best forecasting in the world is still a prediction. Additional capital to support you if demand is higher or lower than expected enables you to react accordingly.
- Offering flexibility for changing inventory needs: A flexible finance facility enables more frequent and smaller orders to respond quickly to real-time demand data, reducing large outlays and minimising risks of overstocking.
- Making you more resilient: During peak seasons, forecasting issues can prove costly. Working capital loans give you more freedom to secure the inventory you need to meet demand without causing cash flow problems.
- Allowing you to experiment and test strategies: When cash is tight, the safer bet is to stick with a consistent approach. But leveraging business finance gives you scope to test forecasting methods, strategic approaches, product promotions, etc., with fewer risks to cash flow. Then you can optimise and scale accordingly, based on results.
- Funding demand forecasting tools and infrastructure updates: You can also use business finance to invest in advanced forecasting tools, enhanced data analytics and real-time inventory planning, spreading the cost of software and implementation with affordable repayments.
- Supporting diversification: The right finance facility can offer greater room for manoeuvre to source from multiple suppliers, widen your product range and adapt to changing market conditions. A more rigid, cautious approach can actually make you more vulnerable to risk and demand shifts.
Flexible business loans for retailers
At iwoca, we make it easy for businesses to access crucial working capital. Our flexible business loans can support effective demand planning in the retail industry. Our hassle-free business funding can be used to purchase additional stock ahead of seasonal sales periods, manage inventory levels effectively, ease cash flow and capitalise on key sales opportunities.
You can borrow between £1,000 and £1 million and use our business loans like a line of credit, where you only pay interest on funds you actually draw down.
See how easy it is to apply for a loan with iwoca and discover how we can fuel your retail business planning.
