Forecasting Frenzy: Inside the Strategies Retailers Are Using to Predict Holiday Trends in 2023

Holiday forecasting is presenting a challenge for retailers in 2023, with multiple layers of economic uncertainty.

After years of supply chain woes and logistics challenges, followed by a 2022 holiday season marked by the effects of inflation, retailers are looking at the 2023 holidays as an intricate puzzle. Behind the scenes, many retail executives say they’re optimistic about a return to normalcy, whatever that may look like in these post-pandemic times.

Few people understand the issue as succinctly as Christian Piller, co-founder and chief commercial officer at Pollen Returns, a firm that optimizes inventory through return pickups for retailers. 

“U.S. consumers remain resilient in this economy,” Piller says. “Similar to Amazon’s Prime Day setting a new sales record, this holiday season may be bigger than last year.”

Holiday forecasting is never a simple task. It’s not too different from peering into a crystal ball, attempting to predict what products consumers will be clamoring for and how much they will spend. Retailers must decipher the complex dance between economic conditions, consumer sentiment, and emerging trends to make accurate predictions. Factors like shifts in spending habits, inflation, and even unexpected events like a natural disaster can drastically alter the retail landscape. As a result, retailers are constantly grappling with the tension between managing inventory to avoid stockouts while avoiding the costly burden of overstocking.

This year, in particular, retailers are being tasked with navigating through a maze of challenges to ensure they’re prepared for the potential surge in consumer activity.

“Retailers will have a tough time forecasting holiday sales given economic uncertainty but the one thing that does not change, regardless of economic conditions, is returns,” Piller says. “Many retailers do not have efficient returns processes and systems in place. Charging consumers for returns is not a solution to these inefficiencies.”

Although retailers have voiced frustrations about the impact of inflation on last year’s holiday season, total holiday spending was still up 7% in 2022. In an article on Street Fight, Nancy Shenker said she believes overall sales will be up again this year, with more consumers using coupons, shopping for deals, and taking advantage of special holiday shopping days like Black Friday and Cyber Monday. 

A recent survey by CNBC backs up those assertions, finding that while inflation is down significantly, the majority of retailers still expect consumers to be looking for discounts. As a result, CNBC found that retailers are ordering less and drawing down inventories before the holiday season begins.

Piller says there are a number of steps retailers can — and should — take now to shore up their positions, like looking at returns as a sales augmentation strategy.

“Retailers need to make their return processes convenient and efficient,” he says. “Seventy-five percent of consumers said they would buy the same item from one retailer over another if a better returns experience, like at-home pickups, were offered.”

The rise of e-commerce has added another layer of complexity to holiday forecasting. Retailers must strike a balance between their physical stores and online platforms, understanding how consumer behavior differs between the two channels. The growth of online shopping has also led to an increase in last-minute purchases and shorter shopping windows, making it challenging for retailers to accurately predict demand.

Piller says it’s no surprise that omnichannel and e-commerce have brought with them unexpected challenges in return forecasting. In fact, he says the No. 1 mistake retailers are making in 2023 has to do with how they handle returns.

“E-commerce continues to rapidly grow but the rate of returns has remained constantly at 20%. Retailers have struggled to update their forecasts to contemplate returns because the data on when that item will come back and what condition it is in is either unavailable or takes weeks after the return is initiated to acquire,”  Piller says. “Retailers must do a better job of forecasting, managing, and integrating returns into their sales forecasts and network design.”