Forecasting case study: Carlson Department Store Case Problem 1 The Carlson Depa
ID: 429593 • Letter: F
Question
Forecasting case study: Carlson Department Store
Case Problem 1
The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 1996. The store was closed for four months (September 1996 through December 1996), and Carlson is now involved in a dispute with its insurance company concerning the amount of lost sales during the time the store was closed. Two key issues must be resolved: (1) the amount of sales Carlson would have made if the hurricane had not struck; and (2) whether Carlson is entitled to any compensation for excess sales from increased business activity after the storm. More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses.
Table 1 Sales for Carlson Department Store, September 1992 Through August 1996
Month 1992 1993 1994 1995 1996
January 1.45 2.31 2.31 2.56
February 1.80 1.89 1.99 2.28
March 2.03 2.02 2.42 2.69
April 1.99 2.23 2.45 2.48
May 2.32 2.39 2.57 2.73
June 2.20 2.14 2.42 2.37
July 2.13 2.27 2.40 2.31
August 2.43 2.21 2.50 2.23
September 1.71 1.90 1.89 2.09
October 1.90 2.13 2.29 2.54
November 2.74 2.56 2.83 2.97
December 4.20 4.16 4.04 4.35
Table 1 shows the sales data for the 48 months preceding the storm. The U.S. Department of Commerce also published total sales for the 48 months preceding the storm for all department stores in the county, as well as the total sales in the county for the four months the Carlson Department Store was closed. Table 2 shows these data. Management has asked you to analyze these data and develop estimates of the lost sales at the Carlson Department Store for the months of September through December 1996. Management also has asked you to determine whether a case can be made for excess storm-related sales during the same period. Carlson is entitled to compensation for excess sales it would have earned in addition to ordinary sales.
Table 2 Department Store Sales for the County, September 1992 Through August 1996
Month 1992 1993 1994 1995 1996
January 46.8 46.8 43.8 48.0
February 48.0 48.6 45.6 51.6
March 60.0 59.4 57.6 57.6
April 57.6 58.2 53.4 58.2
May 61.8 60.6 56.4 60.0
June 58.2 55.2 52.8 57.0
July 56.4 51.0 54.0 57.6
August 63.0 58.8 60.6 61.8
September 55.8 57.6 49.8 47.4 69.0
October 56.4 53.4 54.6 54.6 75.0
November 71.4 71.4 65.4 67.8 85.2
December 117.6 114.0 102.0 100.2 121.8
Managerial Report
Prepare a report for the management of the Carlson Department Store that summarizes your findings, forecasts,, and recommendations. Include the following:
1. An estimate of sales had there been no hurricane.
2. An estimate of countywide department store sales had there been no hurricane.
3. Use the countywide actual department stores sales for September through December 1996 and the estimate in part (2) to make a case for or against excess storm related sales.
4. An estimate of lost sales for the Carlson Department Store for September through December 1996.
Explanation / Answer
1. Based on Carlson's data, 39% of their annual sales occur in the last 4 months of the year. See the seasonal analysis tab.If 61% of the sales occurred in the first 8 months then we estimate the total 1996 sales for Carlson to be 32.21 had there been no hurricane.
2. Using the same methodology as Part 1, it appears that in the county a similar % of sales as Carlson occurs in the last 4 months. Thus, we estimate sales in the county of 739.72 for 1996 had there been no hurricane.
3. Estimated 1996 sales without the hurricane was 739.72 Actual 1996 sales with the hurricane was 802.8. Comparing 1996 to 1995, this is a 15.6% growth in sales as compared to a decline in year to year sales previously.To test to see if this difference is statistically significant, we would develop a confidence interval using a Student's t test and a 95% confidence.Our sample size is 3, the actual sales values from 1993 - 1995. Assuming that sales are relatively flat and sales are normally distributed a value outside our calculated confidence interval would indicate that the hurricane impacted department store sales in the county.Our calculated confidence interval from the confidence tab is 648.76 to 786.44. Since actual sales are greater, the hurricane had a positive impact on county sales in 1996.Additionally, the % of sales in the last 4 months went from an average of 38.9% to 43.7%
4. September to December sales for 1996 in the county as a percentage of annual sales rose to 43.7%. Assuming the percentage is roughly the same throughout other county stores, we would assume that the first 8 months of Carlson's sales would be a smaller proportion of the actual sales for 1996. Given that, to calculate total sales for Carlson for 1996, divide the sum of the first 8 months of sale by 1 - 43.7%. This gives us total anticipated sales for 1996 of 34.92. The last 4 months would be the difference between 34.92 and 19.65 which comes to sales for Carlson for September through December 1996 to be roughly 15.26.