Annals of Operations Research (2020) 291:761–777

https://doi.org/10.1007/s10479-019-03148-8

S.I.:REALCASEOR

Demand forecasting in retail operations for fashionable

products: methods, practices, and real case study

Shuyun Ren1 · Hau-Ling Chan2 · Tana Siqin3

Published online: 28 January 2019

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Abstract
Demand forecasting for the fashionable products is still a difficult task for both academia
and industry regardless of how many effective approaches have been investigated and studied
in the literature. The arriving of big data era leads to a round of revolution on the demand
forecasting for the fashionable products, and at the same time, it makes a great challenge to
traditional forecasting methods and inventory planning. In this study, we firstly conduct a
comprehensive literature review on demand forecasting methods for the fashionable products
and find out the challenges of the traditional forecasting methods. Then, we examine how
fashion retailer tackles the future demand forecasting and inventory planning problem in
practice via a real-world case study. Finally, an in-depth analysis and future research directions
are discussed.

Keywords Demand forecasting · Fashion retail · Case study · Big data

1 Introduction

Over the past years, there has been a significant revolution in the fashion industry. The rapid
development of big data and AI technologies have redefined the fashion retail operations as
it provides explosive information growth and affects both the behaviors of the customers and
operations of the companies significantly, including those in the fashion industry. In the past,
it was observed that the fashion retailers were the ones who had full information, however, this
phenomenon has been changed. Nowadays, due to the technological development, customers

B Hau-Ling Chan
itcling@yahoo.com.hk
Shuyun Ren
shuyun_shara@live.cn
Tana Siqin
tana525@126.com
1 Guangdong University of Technology, Yuexiu District, Guangzhou City, China
2 Division of Business, Hong Kong Community College, The Hong Kong Polytechnic University,
Hung Hom, Kowloon, Hong Kong
3 SHU-UTS SILC Business School, Shanghai University, Jiading District, Shanghai City, China

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can access to information from different sources easily. For example, they can make pricing
comparison between two different e-tailers in a timely manner with limited cost (McKinsey
2018). On the other hand, in the fashion industry, demand forecasting is always one of the
most important elements in its operations decision support system as it can assist the fashion
retailers in preparing the right products at the right time. An accurate demand forecasting is
crucial to the profitability of retailers and allows them to have a large flexibility in operations.
Fashion industry has been known for predominantly dealing with the products which are
characterized by short product life cycles, volatile and unpredictable demand (Ren et al.
2015), while the big data revolution will further intensify these features. Among these, the
core change of the big data revolution is that it enables customers to understand their own
tastes, preferences and demand, so as the fashion companies. Therefore, in the big data era,
it leads to both challenges and opportunities to demand forecasting and inventory planning.
The fashion industry is indeed a dynamic business, characterized by demand uncertainty
resulting from high variation in customers’ tastes, fashion trend and consuming behaviors,
which makes it impossible to forecast demand accurately. Traditionally, the customers usu-
ally lack of information to identify what they really want and the demand strongly depends
on fashion trends, which is led by the upstream of fashion industry. Besides the fashion
trends, previous forecasting methods have also taken into account the particularities, such as
seasonal effect (Yu et al. 2012), color alternatives and other exogenous variables disturbing
sales including price level (Ren et al. 2015), end-of-season sale and sales promotion (Choi
et al. 2011a, b). All these constraints make the demand forecasting methods for the fash-
ionable products very specific and complex. However, according to McKinsey (2018), when
consumers today are coming in a store, they have already had an idea of what they want in
mind. The arriving of big data era leads a round of revolution on fashion demand forecasting,
which not only poses a big challenge but also provide an opportunity for the industry. Apart
from the constraints considered in the traditional demand forecasting methods, the current
forecasting methods should also incorporate the customer information that is generated by
big data revolution. The customer generated information includes customer reviews, social
media and search traffics (Choi et al. 2017). Regardless of how many effective approaches
for fashion demand forecasting have been investigated and studied in the literature, fashion
demand forecasting is still an increasingly difficult task for both academia and industry.
In the big data era, there are massive amounts of timely data available from the social
media, applications, and innovative e-products connected to the software system that can
be collected at a low cost. This data includes not only the quantitative historical transaction
sales performance, but also the qualitative comments from the consumers. Under the dynamic
business environment and the rapid technological development, the corporate has to better
utilize the new data to maintain its competitiveness in the marketplace. Therefore, the data,
collected from different sources and in various formats, should be employed to perform the
scientific analysis in order to make the “best” decision for the corporate. Traditionally, the
forecasting is first conducted to predict the demand in future, which will then be incorporated
into the optimization algorithm to determine the inventory level satisfying all the operational
constraints. Specifically, in the presence of big data, the corporate has to develop new algo-
rithms to learn the patterns and make decision for solving the operations problem. The idea
is to reveal the relationship among all possible solutions and available data, which can help
problem solving (e.g., tackle the problem of demand uncertainty) with a better performance
(e.g., financial performance). One of the most common big data applications is the inventory
planning. For example, Walmart, a giant retailer in the world, develops an analytics hub to
process all internal and external data to tackle the inventory replenishment problem in a real
time manner (Marr 2017). Big data analytics, through the structure and unstructured data

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analysis, can help discover the consumer’s buying behavior, identify the correlation among
the transactional data, evaluate the browsing pattern from e-commerce, as well as reveal the
consumer tastes and preference. This corresponding result generates important insights on
the inventory and pricing decision.
This study contributes to the existing literature by examining how a fashion retailer
advances its demand forecasting method and inventory planning in the big data era as this
topic is under-explored in the literature. More important, this study also discusses the big
data evaluation issues that generate crucial insights for both academia and practitioner.
To our best knowledge, this paper is the first work to examine big data based demand
forecasting for fashionable products in practice. To be specific, the following research topics
will be addressed. Firstly, a comprehensive literature review on fashion demand forecasting
methods in big data era is conducted. Then, how a fashion retailer predicts future demand
and makes inventory planning in real world case is examined. After that, the revolution
and challenges of forecasting demand and inventory planning with big data will be further
identified and analyzed. Finally, future research opportunities and directions for fashion
demand forecasting in big data era are suggested.

2 Literature review

2.1 Forecasting methods in fashion retailing

In conducting demand forecasting for fashion retailing, the classical approach starts by ana-
lyzing the product features (Nenni et al. 2013). After that, fashion companies need to decide
the forecasting approach. Fashion retailers usually adopt the traditional statistical methods,
such as Bayesian approach, auto-regression, exponential smoothing, Holt-Winters model,
ARIMA and SARIMA based on the Box and Jenkins methods, artificial intelligent (AI) meth-
ods including artificial neural networks (ANN) and related evolutionary methods, extreme
learning machine (ELM) and extension methods, grey method (GM), fuzzy logic, etc. for
fashion demand forecasting.

2.1.1 Statistic fashion sales forecasting methods

The statistic methods are widely used due to three major reasons. First, they are easy to
be operated and implemented. Second, they run fast to forecast and compute the predicting
results. Finally, they have a closed form expression which makes them easier to combine with
other business operations decisions (e.g., inventory management) together. If the retailers have
to address how the time-series trend (including seasonal trend) affects the future demand,
statistical methods are suitable especially for the products with stable demand.
The earlier study on fashion demand prediction is Green and Harrison (1973). Green and
Harrison (1973) explore a demand forecasting of women dresses by Bayesian approach.
Yelland and Dong (2014) examine recently the applicability of a Bayesian forecasting
model for fashion demand forecasting. It is found that the proposed hierarchical Bayesian
approach yields superior quantitative results compared to many other methods. Mostard et al.
(2011) conduct a comparison study on several methods that are suitable for predicting the
single-period products. In this study, the advance order data obtained by allowing customers
pre-order and other source of data are used, due to the lack of historical demand data. By
analyzing the case of a mail order apparel company, they suggest that a novel ‘top-flop’

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approach performs better among a group of pre-order based methods. Furthermore, they find
that the expert judgment methods outperform the advanced demand information method for
a small group of products. Taking the influence of related items and corresponding price on
sales forecasting into consideration, Ren et al. (2015) conduct a panel data forecasting model
to predict weekly sales of 7 fashion items. They suggest that panel data forecasting model
performs better than the traditional time-series model since more demand impact factors are
involved. It makes new item or product forecasting to be difficult continuously being lack
of historical data in fashion industry. Thomassey et al. (2003) examine the accuracy of sales
forecasting for new items use item classification method. Their study shows that a larger
number of item families and pertinent classification criteria are required in the respective
forecasting procedure in order to achieve an improved forecasting precision. They conclude
that product family and aggregated forecasting are more accurate than the individual item’s
forecasting. In order to develop an effective and efficient inventory and logistics system for
fashion retailer, the highly intermittent SKU in each store on each day needs to be predicted
and further determined. Considering this issue, Li and Lim (2018) proposes a greedy aggrega-
tion–decomposition method based on the real-world SKU-store-day demand database from
a retailer in Singapore, to solve intermittent demand forecasting problem. This new frame-
work of hierarchical forecasting shows significantly better performance than other widely
used intermittent demand forecasting methods such as Croston’s method, Syntetos–Boylan
approximation (SBA) method (Syntetos and Boylan 2005), and TSB (Teunter et al. 2011).
Conducting forecasting using the statistical methods mainly depends on regressing the
time-series trend from historical sales data. This kind of methods can achieve acceptable
performance on forecasting basic products with stable demand. However, in big data era,
affected by multiple factors such as the fashion trends, exhibit a highly irregular pattern
(Choi et al. 2011a, b) and even a piece of news from social media, the fashion demand shows
irregular and volatile over a short period of time. This leads to traditional statistical methods
generally become ineffective despite being simple and fast (Chern et al. 2015) (Table 1).

2.1.2 Artificial intelligent (AI) fashion sales forecasting methods

With the advance of computing technologies, AI methods using artificial intelligence tech-
niques including artificial neural networks (ANN) (Lin et al. 2018) and related evolutionary
computation have been widely used to implement fashion sales forecasting (see Frank et al.
2003; Au et al. 2008; El-Bakry and Mastorakis 2008; Yu et al. 2012 for details).
One of the most popular AI forecasting methods is Artificial Neural Network (ANN)
based methods, which have been proven being able to provide satisfactory results (in terms
of forecasting accuracy) in different forecasting domains (Olson and Mossman 2003; Yoo
and Pimmel 1999; Zampighi et al. 2004). Despite producing high forecasting accuracy, ANN
and the advanced ANN methods (e.g. evolutionary neural networks ENN) based forecasting
models are very time consuming to conduct forecasting due to their utilization of the gradient-
based learning algorithms. ANN based models would take a substantial amount of time to
complete a basic sales forecasting task (e.g., it may take several minutes), and evolutionary
neural networks (ENN) would even take a longer time (Au et al. 2008). Following that, the
extreme learning machine methods (ELM) (Pao et al. 1994; Sun et al. 2008) together with
extended ELM (EELM) method (Yu et al. 2012) are developed for dealing with fashion
sales forecasting problems. The forecasting performance of ELM based methods for fashion
sales forecasting is proven to be better than many back propagation neural networks based
methods (Zhu et al. 2005; Huang et al. 2006). Although being more stable than ELM, EELM
still needs a substantial amount of time to conduct prediction. Thus, the long computational

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Table 1 The forecasting features of statistical methods

Methods Paper Data Consideration of Forecasting
demand impact performance
factors

ARIMA/SARIMA Box et al. (2008) Historical sales Regression,

data Seasonal effect
Bayesian Green and Historical sales Suppose normal The forecasting
approach Harrison, data distribution performance is
(1973), Choi demand, applicable in
et al. (2003) and Seasonal effect given practice
Yelland and
Dong (2014)
Item classification Thomassey et al. Historical sales Items product family
method (2003) data and classification, and aggregated
information of mean-term forecasting are
related items forecasting more accurate
than the
individual
item’s
forecasting
Greedy Li and Lim (2018) Historical sales Intermittent Perform better
aggregation–de- data and sales demand, than other
composition transactions crosssectional widely used
method effects, methods to
Seasonal effect solve
intermittent
demand
forecasting
problem
Panel data based Ren et al. (2015) Historical sales Regression, Perform better
model data, the sales Correlation than selected
data of other among related statistical and
related items items, price AI methods

time becomes a major hurdle for the deployment of many ANN and ENN based forecasting
models in real world fashion sales forecasting.
Besides, another popular forecasting method for predicting fashion product’s demand is the
grey method (GM), that has been known to be a very efficient method to deal with time-series
demand forecasting problems with insufficient historical data (Mostard et al. 2011; Mengi
and Altas 2011; Hui et al. 2005; Zhu et al. 2005; Sun et al. 2008; Thomassey et al. 2005; Aksoy
et al. 2012). Fuzzy logic based models are able to better identify nonlinear relationships in
the input data, that makes them conduct good performance for fashion demand forecasting
(Liu et al. 2013) (Table 2).
In the existing literature, Xia and Wong (2014) propose the differences between classical
methods (based on mathematical and statistical models) and modern heuristic methods and
suggest that AI methods usually require a substantial amount of time for conducting fore-
casting and the forecasting performance largely depends on having sufficient historical data
for training. Although AI forecasting models are effective in solving the problem related
to small scale datasets, in terms of big data, they might not be useful to deal with large
datasets. Because the data source is usually generated and collected without centralized con-
trol, several problems should be solved before predicting the trend and future. Therefore, AI

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Table 2 The summary of AI forecasting methods

Methods Paper Data requirements Demand impact Forecasting
factors performance

ANN Frank et al. (2003) Sufficient data Color, size, price, Better than statistical
and El-Bakry and class, store, label methods with
Mastorakis (2008) Sufficient data
ENN Au et al. (2008) Sufficient data Color, size, and price ENN can provide
reasonably accurate
forecasting,
although retail
sales data of
apparel can be
noisy and random
ELM Pao et al. (1994) and Sufficient data Month, date, code Work fast and
Sun et al. (2008) number, color, size, perform better than
price, sales backpropagation
neural networks
Fuzzy logic Hui et al. (2005) Historical data Seasonal, age, Predict the
gender, height, skin customers’
colour, fashion, favourite colours
emotional, social for apparel design
relationship, habits efficiently

based technologies are applied not only in the forecasting system, but also used to solve the
problems related to unstructured and semi-structured datasets that have noise.

2.1.3 Hybrid fashion sales forecasting methods

The limitations of both AI methods and statistical methods hence call for the development
of new innovative forecasting methods. For example, a series of hybrid models, which com-
bine the advantages of statistical methods and the AI methods, were proposed in the recent
literature.
The motivation of developing the hybrid models were either combing method A and B’
s respective advantages or overcoming method A’s deficiencies by applying method B. To
combine method A and B’ s respective advantages, researchers (Aburto and Weber 2007;
Choi et al. 2011a; b; Pai and Lin 2005; Ren et al. 2015) usually used the statistical methods
to forecast the linear component while adopt the AI methods to treat the non-linear ones. To
overcome one method’s deficiencies, researchers usually try to adopt advanced method to
improve a technical problems in forecasting, e.g., reducing the data requirements training in
NN (Thomassey et al. 2005) and NN’s generalization problem (Wong and Guo 2010). All
case studies in the studies of hybrid models showed promising performances comparing with
its component methods.

2.2 Performance measurement for demand forecasting

In demand forecasting, the performance measures play a critical role. Most of the studies
evaluate the forecasting performance via mean squared error (MSE), mean absolute percent-
age error (MAPE) and mean absolute error (MAE). Besides, Aburto and Weber (2007) use
a normalized MSE for comparison. Ren et al. (2017) adopt mean absolute percentage error

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(SMAPE) for assessment. All studies’ performance measurement focus on the forecasting
accuracy.
However, in real world cases, forecasting accuracy is not the only concern for fashion
industry experts and supply chain practitioners. Hence Ren et al. (2017) evaluate some popular
forecasting methods’ performances from different aspects include the accuracy, speed, data
sufficiency requirements, stability, and ease of use and other related parameters.

3 Real-world case and application

3.1 Company background

Founded in Guangzhou in 2000, Company A1 is a mass-market fashion brand which designs,

produces and sells the trendy garments, footwear and accessories in China. The target con-
sumer group of Company A is the young female aged below 30. With the popularity in the
market, Company A expanded its business from Guangzhou and has started selling online
to reach diverse provinces since 2001. To be specific, Company A does not have its own
e-platform to sell online, however, their products are sold on a third party e-commerce plat-
form such as Tmall and JDcom. In order to ensure that the product design is driven and
preferred by the customers and the customers’ needs are well satisfied, Company A first
collects the fashion news from the offices located in New York, Milan, and Shanghai. It then
sends the corresponding information to the product development centers in Hong Kong and
Guangzhou. In this way, it can help improve the product design and better understand the
most updated trend in the fashion market. In 2018, it has almost 40 bricks and mortar stores
in China.

3.2 The data used to do sales forecasting

3.2.1 Quantitative data retrieval

Company A conducts demand forecasting for its products regularly in each season (i.e.,
spring, summer, autumn and winter). About 4–6 months prior to the season starts. Company
A will retrieve the quantitative data from its Enterprise Resource Planning (ERP) system for
demand forecasting analysis based on the types of the fashion products. The product types
can be divided into basic and fashionable, and the classification of the product type is based
on the fabric usage, color, and style. For the basic type of a fashion product, such as blank T-
shirt, data regarding the historical sales quantity of the blank T-shirt in the past two successive
years in the same season is collected and then used to reflect the market demand with respect
to each color. Historical sales data is the main data source to conduct demand forecasting
for the basic type of product as the demand of which is more stable when compared with the
fashionable type of product.
Regarding the fashionable type of product, such as trendy print dress, demand is highly
uncertain and the historical sales revenue of dress generated in the past three successive years
in the same season is first collected. This is because the historical sales quantity can be used to
reveal the number of product sold only (i.e., how popular it is), however, it is unable to project
the profitability of selling that product in which the trendy print dress can be sold at either

1 The real name of the company is masked and replaced by Company A.

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regular price or discounted price. Therefore, sales revenue data provides a good reference
point about the market acceptance and product popularity in term of design and cutting.
Quantitative data is the main data source for demand forecasting when the products are
sold through brick and mortar retail stores (i.e., offline selling). This is because there are
sufficient and reliable data available and they can be retrieved easily. Compared with online
selling products, the forecasting of offline selling products pay less attention on seasonal and
regional features.

3.2.2 Qualitative data retrieval

Apart from quantitative data, qualitative data (also called ‘soft data’ in Company A) is
also extracted to supplement the forecasting result. Qualitative data is an important tool for
adjusting the forecasting result especially for the fashionable type of product development in
the new coming season. This is due to the fact that the fashionable elements are dynamic and
they change rapidly season from season. The quantitative data, such as the past sales revenue,
shows the business performance when the products are embraced with the seasonal elements
which are popular at that period. However, it cannot help predict the customer demand for
the coming season with the up-to-date product features and trendy element.
There are two main kinds of qualitative data that can be used to help demand forecasting
in Company A, fashion trend and customer research.
(1) Fashion trend The fashion trend is ever changing from time to time that leads to a
difficulty in the demand forecasting. For a fashion company, identifying and catching
fashion trend plays a crucial role in demand forecasting, and even in the operations
management. In Company A’s case, there are many kinds of approaches to get the
useful information of fashion trend, such as fashion magazine, fashion show, fashion
news from internet and social media. From these channels, pictures, text data and other
types of information are collected for demand forecasting and production planning.
(2) Customer research To better identifying the market trend, understanding the preference
of the target customer as well as grabbing the business opportunity, Company A performs
market analysis in each season including the competitive product analysis, marketing
survey, site visit and collects feedback from the frontline staff. All the insights are then
presented in the forms of pictures, narratives, and videos and they are consolidated in
the ERP system. After that, Company A has to refer to the marketing analysis to get the
knowledge about the color trend, style and pattern (e.g., Bohemia style, stripe pattern)
in the previous year and coming season to determine the new product development.
Once the new product is designed, it will be modified by the feedback from the frontline
staff and customer comments from the survey to justify the final design and forecasting
quantity. For instance, the frontline staff reported that a particular dress has been tried
frequently; yet, the sales performance of it is poor due to the inappropriate neckline
width.
In some cases, supply disruption risk is emerged which will affect the forecasting result.
Supply disruption refers to the situation in which the supplier is not able to fulfill the contract
agreement due to the unpredictable reasons such as natural disaster, raw material sourcing
problem, political instability (Shen et al. 2018). In the presence of supply disruption, the
production lead time is prolonged, the products cannot hit the store shelves as scheduled and
the forecasting error (i.e., the difference between the actual and predicted demand) increases.
Therefore, data related to the new production lead time and arrival date will be incorporated
to amend the forecasting result.

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3.3 Demand forecasting methods

3.3.1 Basic type of products

In Company A, the quantitative data (historical sales data) collected from the ERP system
is the main source for conducting the sales forecasting of basic type of products. Generally,
3-month data is chosen out for processing daily or weekly demand prediction. Considering
simple and easy operating reasons, statistical forecasting methods, such as auto-regression
and ARIMA, are used to generate preliminary predicting results by using the SPSS analysis.
Other impact factors (such as fashion trend, marketing strategy, district features, etc.), are
then taken into the consideration for further prediction. In this stage, the initial forecasting
result will be modified according to the qualitative data and the expert experience plays an
important role to obtain the final forecasting results.

3.3.2 Fashionable type of products

Unlike basic type of products, there is insufficient amount of historical data for processing
the sales forecast for the fashionable type of products. In Company A, the sales of fashion-
able products and new products (that have never been sold before) are probably predicted
by analyzing the sales of related items, fashion trend and customer-generated information.
Customer-generated information includes the competitive product analysis, marketing sur-
vey, site visit and feedback from the frontline staff. These kinds of information are generally
collected in an unstructured format, such as pictures and text, which is hard to be quantified
and analyzed. In this case, Company A applies expert experience to reach final forecasting
results by combining the information on hands and decision experience from practice.
Once the forecasting result is generated, it will be applied for two major domains, namely
merchandise planning and operations management. Merchandise planning is the mechanism
that the firms possess for aligning their efforts with the expectations of their customers.
Under the mechanism planning, the forecasting results can be used for product design and
development, inventory ordering decision, and fabric requirements determination. With the
estimated selling quantity, the forecasting result serves as a reference tool to evaluate the
marketing promotion budget. In terms of the operations management, the forecasting result
can help control the seasonal operations cost (This is because the forecasting result can reveal
the popularity and the profitability of selling that particular fashion product. If the estimated
amount of sales demand is low, then Company A should tighten the cost for operations
in order to reach the target profit.), act as an indicator for the liquidity, as well as provide
assessment about the sales and financial performance of the retail business of Company A.
The fashion retailer usually conducts a two-step demand forecasting: Firstly, the likely
demand of the product is forecasted via some simple models. Then adjustments are conducted
by human which are based on the experts’ opinions accounts for fashion trends, seasonal
effect, price level and other exogenous variables. This forecasting practice has two main
drawbacks: (1) inconsistent forecasting results: although forecast results for basic type of
products are trustworthy while more and more items are becoming fashionable. Since the
traditional method could not guarantee the accuracy of the sales forecasting, the human based
adjustment takes charge of the forecasting effects. Therefore the demand forecasting results
are inconsistent; (2) time delaying effects: as traditional forecasting system lacks of methods
capturing fast-changing market information, the forecasting results could not guarantee the

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accuracy and speed. Therefore the retailers are not able to accurately determine market
changes and not able to speedy response to the demands of market and customer.

3.4 Inventory planning decision

Forecasting technique is an important tool for demand forecasting. However, the forecasting
result generated from the forecasting technique cannot be used for inventory planning without
further modification. In real world practices, when it comes to the inventory planning, some
crucial factors along with the forecasting result have to take into consideration. First, the
trendy elements of the fashion product are of prime concern in inventory planning. These
elements include color, fabric, pattern and style. As the taste of the consumer changes rapidly
and there is a lack of historical data about the sales performance of the current trend, the trendy
elements are not considered in the demand forecasting and so as the respective inventory
planning. Therefore, the managerial has to further adjust the inventory planning decision with
respect to the latest fashion trend. Apart from trendy elements, the target revenue contributed
to each season is another essential factor when making inventory planning decision. The
managerial has to order sufficient amount of inventory in order to meet the revenue target.
Besides, the location and infrastructure of the physical brick and mortar store should be
considered in the inventory planning. It is more likely that a physical store located in the
center of the big city has more visitors and shoppers than the one located in a small city, and
hence, the final inventory planning decision will exceed the forecasting quantity. In addition,
the size of the physical store should be incorporated into the inventory planning model.
The capacity of the physical store will affect the product item as well as the corresponding
inventory level being sold in that particular store. Last but not least, most of the forecasting
method assumes that the production lead time is constant. In reality, supply disruption may
occur in which the production lead time is prolonged (i.e., the time between placing an
order and getting the inventory) and cannot be sold in season. Therefore, the initial inventory
planning has to be adjusted and revised.

4 Revolution of fashion demand forecasting in big data era

4.1 The influence of user-generated information on fashion demand forecasting

With the rapid development of internet technologies, online shopping becomes a mainstream
consumption pattern. The battlefield of operations management moves from offline to online.
User-generated information is available on online channels, such as review system of
e-commerce platform (only access to customers who have purchased products) and social
media (public media for customer and non-customer). Many literatures (see Schaer et al.
2019) indicate that user-generated information is useful for sales forecasting and even for
operations management. In this section, we will conduct some discussions on how the user-
generated information affects sales forecasting and how retailers can make use of this kind
of data help sales forecasting and inventory planning, even operations management.

4.1.1 Customer review

Traditionally, the products information and customer review are shared by word-of-mouth
(WOM). While in current internet era, customer review on products is available on many

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kinds of ways such as online review system of e-commerce platform (e.g., Tmall, JDcom,
Amazon, Ebay, etc.) and the third party discussing forum. From these channels, customers
are easy to share and view their experience and opinion on a variety of products that affect
their purchasing behavior each other (Chern et al. 2015).
Many studies (e.g., Chen et al. 2011; Chevalier and Mayzlin 2006; Moe and Trusov
2011; Zhu and Zhang 2010) in literature have been conducted to investigate the relationship
between customers review from the online review system of e-commerce platform and sales
forecasting. They suggest the significant relationship between online consumer review and
sales forecasting. Recently, Chern et al. (2015) have further revealed the influence of customer
review from the third party online discussion platform on sales forecasting and showed that
product sales are significantly associated with the online viewpoints of customers. They also
suggested that the sales forecasting model is more effective with a large number of online
customer reviews. After that, See-To and Ngai (2016) propose a real-time forecasting model
to visualize the key features of demand distribution by using the customers’ reviews from the
online platform in fashion industry. They find that the proposed forecasting model performs
well even it is just a simple model. Besides that, they further reveal the detailed information
content of these reviews and find that brand value, price, and product type and suggest that
these factors play a crucial role in sales forecasting only when customer reviews are sufficient
for a special product. In other words, online retailers should encourage consumers to share
their reviews and experience of purchased products, since the sufficient number of reviews
is essential for demand forecasting. Chong et al. (2017) also conduct a study to examine
how the online review variables, including valence and volume of reviews, the number of
positive and negative reviews, influence the demand of electronic products in Amazon.com.
They suggest that online reviews are good predictors of demand forecasting. Moreover, the
number of positive reviews and number of negative reviews attribute more to sales forecasting
compared with the valence of the reviews.

4.1.2 Social media information

Public social media (such as Facebook, Twitter, Sina blog, Youtube, etc.) is also an important
channel for retailers collecting customer review. Some customers like using these social
networks to express their preference online. Their purchasing behavior is easily affected by
their friends’ recommendation in two mechanisms: named attention effect and endorsement
effect (Cui et al. 2017). Liu et al. (2016) explore how the information from social media
such as Twitter Tweets, Google Trends, Wikipedia views, IMDB reviews, and Huffington
Post news can be used to help accurately predict consumer demand for TV shows. By using
400 billion Wikipedia pages and two billion Tweets, they conduct a structured econometric
analysis and show that information from online platforms can provide a timely representation
of consumer intentions that have important implications for demand forecasting. Cui et al.
(2017) conduct an empirical study to examine the influence of publicly available social media
information from Facebook on daily fashion sales forecasts in apparel retailing. They find
that social media information significantly improves the out-of-sample accuracy of sales
forecasts by 12.85% to 23.23% in different situation.

4.2 Big data based forecasting methods

Sufficient historical data plays a crucial role in conducting sales forecasting analysis. How-
ever, in fashion industry, the historical sales data for fashion products is very limited due to

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the short selling cycle. Especially for the new fashion products, there is no historical data
available for sales forecasting. Nowadays, with the advantage of automatic data retrieving
and processing systems, such as radio frequency identification (RFID) and the Internet of
things (IoTs), it is possible to collect large amount of data from retailers and suppliers that can
be transmitted to business intelligence and analytics tools for demand forecasting analysis
and decisions making use (Choi et al. 2017). These ‘big data’, different from the traditional
data, are linked to real-time events and they can provide the latest updating information for
sales forecasting and thus can help to significantly improve the forecasting accuracy.
As mentioned above, customer review is proved to be helpful for improving sales forecast-
ing accuracy. Retails are highly recommended to collect and make good use of these big data
to enhance the operation management. However, there are great challenges for both practi-
tioners and academic to explore value from customer review information. Different from the
traditional historical data, the user-generated data is always in an unstructured format, such
as text, images, “clicks”, “shares” and “likes”.
Compared with traditional data used in sales forecasting, dealing with these kinds of
user-generated information comes with challenges owing to the significant amount of data
featured with unstructured, textual nature.
Chern et al. (2015) build a Word-of-Mouth Sales Forecasting Algorithm (WOMSFA) to
investigate how online customers’ review affects product sales forecasting and the relation-
ship between online reviews and consumer behavior by analyzing online review properties,
reviewer characteristics and review influences. A real retail case from Taiwan suggests that
there is a significant relationship between online customer opinions and product sales, espe-
cially for the sales of short-life cycle products. After that, Castillo et al. (2017) conduct a
study to investigate the demand forecasting of a new product with limited historical sales data
and related big data. In their study, two feature selection techniques, namely a correlation-
based feature subset evaluation method, are used to identify and select impact factors having
significant influence on sales forecasting. Then, a set of machine learning methods has been
applied to create forecasting models for the new product.
It is worth to point that the key aspect of modeling fashion sales forecasting is the spec-
ification of the user-generated information variables (Schaer et al. 2019). For example, in
the study conducted by See-To and Ngai (2016), the customer review information from e-
platform is incorporated in the form of the absolute numbers of positive and negative reviews
during different period.

4.3 Revolution in inventory planning

In the big data era, retailers can get access to the data easily with the use of the information
technologies. The collected data can be employed to conduct the data mining in order to
obtain the precise and meaningful information for forecasting and hence an optimal inventory
planning with minimum cost or maximum profit can be generated. With the help of the RFID,
timely information such as the sales quantity, inventory level, the number of time that a
particular fashion item has been tried on in the fitting room can be obtained across brick-and-
mortar stores. This information can then be used for inventory planning. For example, van
Jaarsveld and Scheller-Wolf (2015) construct an algorithm to determine the optimal inventory
policy using the big data. Bertsimas et al. (2016) incorporate the 4 years transaction data,
inventory level, physical store locations generated from Google Geocoding API, the user
ratings, number of awards, into the optimization problem for inventory planning of the films
for all physical stores.

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4.4 Using the blockchain technology for demand forecasting in fashion industry

Blockchain technology has been emerged into the fashion industry (Radocchia 2018). It
is a crucial tool used to improve the supply chain traceability and inventory management
(Agrawal et al. 2018). In a blockchain system, the ledger can be copied and updated. All
parties have to confirm the updated transactions such that it can be shared in a secured
way (Iansiti and Lakhani 2017). Therefore, supply chain members can make use of the new
transaction data to improve the demand forecasting without the presence of third party for
information transmission.

5 Conclusion, insights and directions for future research

With the comprehensive literature review and the real-world case analysis on fashion retail
sales forecasting, we identify the drawbacks of traditional forecasting methods and challenges
the fashion retailers facing in big data era. Besides, when massive amounts of timely data
are available around, how a real-world fashion retailer practically conducts sales forecasting
and inventory planning is also examined from different aspects. On the whole, we have the
following findings in the domain of revolution in demand forecasting in fashion industry.

(1) The revolution in demand forecasting in fashion industry With the penetration of big
data, the fashion industry is being reshaped from all the aspects, from forecasting to
retailing, from offline to online. Among all aspects, demand forecasting might be first
to get real and enjoy the advantages of the big data. Two main revolutions could be
summarized: (1) from more to less: in the past, lots of efforts put on demand forecasting
focused on how to consolidate more useful exogenous variables to improve the forecast
accuracy. Nowadays, the size of such data generated is huge which makes it meaningless
to talk about how much data are generated every day, as the figure keeps changing. From
this aspect, handling data is difficult, and how to reduce the noise and extract useful data
so as to truly utilize the value hidden in those data is worth studying; (2) from upstream
to downstream: before, the customers usually lacked of information to identify what
they really want and the demand were strongly depend of fashion trends, which was led
by the upstream of fashion industry. Nowadays, information is pushed to customers in
diverse channels, which enabling customers to explore their needs. The lead of fashion
demands therefore transfer from upstream to downstream, in another words, the question
on how to capture customers’ need in improving the demand forecasting performance
is worth studying.
(2) Two-step demand forecasting in real practice The forecasting plays an important role in
the operations management of the fashion retailing. The fashion retailer usually conducts
a two-step demand forecasting: Firstly, the likely demand of the product is forecasted
via some simple model. Then adjustments are conducted by human based on experts’
opinions accounts for fashion trends, seasonal effect, price level and other exogenous
variables. This forecasting practice has two main drawbacks: (1) inconsistent forecasting
results: although forecast results for basic type of fashion product were trustworthy while
more and more items are becoming fashionable. Since the traditional method could not
guarantee the accuracy of the sales forecasting, the human based adjustment takes charge
of the forecasting effects. Therefore the demand forecasting results are inconsistent; (2)
time delaying effects: as traditional forecasting system lacks of methods capturing fast-
changing market information, the forecasting results could not guarantee the accuracy

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and speed. Therefore the retailers are not able to accurately determine market changes
and not able to speedy response to the demands of market and customer. Furthermore,
the retailers admit that it was difficult for them to quantify the exogenous variables using
traditional forecasting methods. Therefore, there are of great needs for them to adopt
some advanced technologies to improve the demand forecasting performances. Last but
not least, the retailer believes that the fashion industry has inevitably accessed to the
Internet thinking.
(3) User-generated information provides possibility for demand forecasting and fashion
industry The application of big data in diverse channels enables customers to explore
their needs on fashion products. While at the same time, people are exposing all their
actions on the internet and generate useful information for demand forecasting. By
collecting every move of customers, and getting customers preferences from the big
data, they can forecast the market demand accurately. Furthermore, the forecasting
could even recommend products that customers would not need but they would possibly
pay for eventually. Some up-to-date forecasting methods account for customer review
and social media are reviewed.

Funding Funding was provided by National Natural Science Foundation of China (Grant No. 71801054).

Appendix

See Fig. 1.

ERP system

Quantitative data Qualitative data

Sales quantity Sales revenue Insights generated Feedback from

(used for basic (used for from market analysis frontline staff,
item) seasonal item) in the forms of supply lead
pictures, texts, time
videos

Conduct forecasting based on the

statistical technique

Finalized forecasting result

Fig. 1 Demand forecasting approach of Company A

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