As the calendar year 2022 draws to a close, it’s a good time to look back on recent business patterns and the right moment to look forward with new goals and projects for next year. Estimates of future revenue’s ability to support change are fundamental to planning. This is forecasting – a data-driven strategy for informing business decisions based on recent trends shaping our view of the future. Inventory planning, staffing changes, marketing efforts and virtually all aspects of everyday business rely on realistic estimates of where the business will be and what we can reasonably expect for cash flow.
To build a data-driven near-term estimate of future results, we drew data from a representative sample of 2,600 ECP locations distributed across the US in the GPN dataset. We used measures of unit sales over four key categories: eye exams, contact lens, eyeglass lenses and frames. For each month, we compare change in unit sales from the same month, previous year. Employing the statistical technique known as exponential smoothing, this time-series method looks at past patterns to estimate future outcomes.
A rule of thumb is that a forecast should look back at least twice as far as we are projecting forward. Another principle in forecasting is that, as we look back for parallels, we must account for unusual events and know when history doesn’t fit. The pandemic is one of those historic events that doesn’t fit a typical business cycle, so our ability to look-back to the most recent, event-free timeframe is necessarily limited. Given the peak impact of the pandemic occurred during March-May 2020, our look-back period begins with the first post-pandemic, stabilized month: June 2020. As we are using monthly growth vs. last year for our measure, that means we illustrate the percentage change in units beginning the following year, with June 2021 as the start on our timeline. We checked the validity of our predictive model by back-testing the algorithm, applying the forecast to past periods .
The monthly changes from prior year unit sales are plotted over the 16-month lookback period (June 2021 to September 2022). The results are presented as a trendline illustrating growth in percent over same month previous year. Again, we are actually gathering information dating back 28 months, to June 2020 to perform the growth calculation.
The “Validation Zone” (buff color) shows the period where both the forecast and the actual results appear simultaneously. This zone represents the back-testing sample where the forecast is applied to historical periods to compare the predictive value to actual results. The comparison period ran 4 months: June 2022 to September 2022 for all 4 categories. Actual exams averaged 1.31% higher monthly growth than prediction; contact lens growth also averaged higher (0.91%) than the predictive model; lenses actual results were 0.88% higher than forecast; and, frames actual growth averaged 0.66% higher than the forecast.
The 95% confidence interval is displayed as the grey area surrounding the forecast (dotted) line. It provides an upper and lower expectation for the forecast, or the range of possible outcomes that will occur 95 out of 100 times with other samples. The narrower the interval, the more precise the estimate. In the case of eye exams, the interval averages 5.89%; for contact lenses 10.3%; for frames 12.43% and for eyeglass lenses the interval between the upper and lower bound averages 12.13%.
TRENDS BY PRODUCT CATEGORY
Contact Lenses. Among all categories, contact lenses exhibited the highest average growth over the 16 months: 1.36%. Monthly contact lens growth vs. prior year, peaked at 9.39% in May 2022 and was lowest at -6.38% in July 2021. Nine of the 16 months showed positive growth, and the longest streak of continuous monthly increases vs. prior year was the 5 month period November 2021 to March 2022.
The outlook: The forecast for contact lens growth expects an average 2.46% monthly growth over the next six months, peaking in November 2022 at 7.92% and dipping to a -3.67% six-month low growth in October 2022. Four of the next six months are predicted to show positive growth, with the last 3 months representing the longest up-streak.
Eye Exams. Growth in eye exams over prior year averaged 0.66% over the 16 months. The maximum growth was 7.58% in November 2021 and the 16-month low of -5.28% occurred in the prior month (October 2021). Nine of the 16 months exhibited positive growth, however growth was never sustained more than 2 months in a row.
The outlook: Exams are forecast to grow on average 0.81% over the next 6 months with peak growth expected in November 2022 (7.30%) and weakness bottoming at -5.70% forecast for October 2022. As with contact lenses, exams are predicted to show positive growth in 4 of the forecast 6 months. Exams growth streak is projected to be spotty, with maximum 2 months sustained growth.
Frames. Frame unit sales averaged negative growth when comparing each of the 16 months to its previous year equivalent. The decline in growth averaged -2.07% over the 16-month period. The 16-month high was +5.67% and occurred in November 2021, while the low -10.29% occurred in April 2022. Only 5 of the 16 months showed positive growth, and never consecutive months.
The outlook: The forecast calls for an average -1.70% over the next 6 months, projected to peak in November at 5.08% and lowest in October at -7.73%, with just 2 of the next 6 months expected to show positive growth.
Lenses. Growth in eyeglass lenses was weakest among the 4 categories, averaging -2.45%. Monthly lens growth over prior year same month peaked in November 2021 at 4.56% and was at its low point, -10.31% in April 2021. As with frames, lenses showed positive growth in only 5 of the preceding 16 months, and never consecutive months.
The outlook: The 6 month forward-look forecasts continued negative growth averaging -2.39%, and forecast to dip to a six month low of -8.06% in October and peak at 3.99% growth vs prior year same month in November 2022. Lenses are expected to show growth in only 2 of the next 6 months.
The sawtooth pattern of the trendline illustrates the inconsistent nature of growth across all categories both over the preceding 16 months and in the forecast periods. Sustained growth is absent from the recent past and does not appear in the forecast. The matching pattern between actual and forecast in the validation zone corroborates the predictive model.
Over the past 16 months, November 2021 showed the highest growth for exams, frames and eyeglass lenses. Contact lens growth was 2nd highest that month, but peaked in May 2022. Contact lenses had their worst (most negative) growth in July 2021, whereas exams hit bottom growth in October 2021 while eyeglass lenses and frames show their poorest performance in April 2022. The forecast consistently calls for October 2022 to exhibit the worst (most negative) growth for all categories, and the following month (November 2022) to show the most monthly growth over prior year for all categories.
Among the 4 categories, contacts showed the highest average growth (1.36%) and are forecast to continue showing average growth of 2.46% over the next 6 months. Eye exams showed 2nd highest average growth (0.66%) and are projected to grow at a monthly average increase over prior year of 0.81% over the next 6 months. Frames and lenses showed negative growth over the past 16 months -2.07% and =2.45% respectively. They are expected to continue this downward trend, though a bit less negative with frames predicted to decline -1.70% monthly average vs prior year and lenses projected to decline on average -2.39% vs prior year over the next six months.
Spotty, inconsistent growth in the four categories is expected to continue for the near term.