A comparative study between LSTM and ARIMA for sales forecasting in retail

University essay from KTH/Skolan för elektroteknik och datavetenskap (EECS); KTH/Skolan för elektroteknik och datavetenskap (EECS)

Author: Ajla Elmasdotter; Carl Nyströmer; [2018]

Keywords: ;

Abstract: Food waste is a major environmental issue. Expired products are thrown away, implying that too much food is ordered compared to what is sold and that a more accurate prediction model is required within grocery stores. In this study the two prediction models Long Short-Term Memory (LSTM) and Autoregressive Integrated Moving Average (ARIMA) were compared on their prediction accuracy in two scenarios, given sales data for different products, to observe if LSTM is a model that can compete against the ARIMA model in the field of sales forecasting in retail.     In the first scenario the models predict sales for one day ahead using given data, while they in the second scenario predict each day for a week ahead. Using the evaluation measures RMSE and MAE together with a t-test the results show that the difference between the LSTM and ARIMA model is not of statistical significance in the scenario of predicting one day ahead. However when predicting seven days ahead, the results show that there is a statistical significance in the difference indicating that the LSTM model has higher accuracy. This study therefore concludes that the LSTM model is promising in the field of sales forecasting in retail and able to compete against the ARIMA model.

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