Optimal Combination Forecasts on Retail Multi-Dimensional Sales Data
This is an incremental improvement for retail sales forecasting using hierarchical data.
The paper tackled the problem of forecasting aggregated retail sales by leveraging hierarchical product structures, and found that the Weighted Least Squares method improved forecast accuracy over other approaches.
Time series data in the retail world are particularly rich in terms of dimensionality, and these dimensions can be aggregated in groups or hierarchies. Valuable information is nested in these complex structures, which helps to predict the aggregated time series data. From a portfolio of brands under HUUB's monitoring, we selected two to explore their sales behaviour, leveraging the grouping properties of their product structure. Using statistical models, namely SARIMA, to forecast each level of the hierarchy, an optimal combination approach was used to generate more consistent forecasts in the higher levels. Our results show that the proposed methods can indeed capture nested information in the more granular series, helping to improve the forecast accuracy of the aggregated series. The Weighted Least Squares (WLS) method surpasses all other methods proposed in the study, including the Minimum Trace (MinT) reconciliation.