San Francisco Chronicle
By: Thomas Lee
Forget the Internet. Perhaps the biggest long-term threat to apparel retailers is Mother Nature herself.
Chains such as Gap Inc. in San Francisco, Macy’s and Dick’s Sporting Goods have already blamed poor sales of winter clothing on higher-than-usual temperatures caused by the weather phenomenon known as El Niño.
The trouble is: We know quite a bit about El Niño, including the fact that it was coming. And yet, after reams of news reports predicting a warm winter, retailers seemed to be caught off guard with warehouses and store racks full of unsold coats, scarves, sweaters and boots.
So if they’re scrambling to deal with weather they can predict, how will they deal with trends that are less predictable, like the full impact of global warming?
“It’s really hard to make long-term predictions” about weather and inventory, said Amy Koo, an analyst with Boston’s Kantar Retail consulting firm. “But certainly, retailers should be taking these things into account.”
One good reason: There are hundreds of millions of dollars at stake. Planalytics, a predictive weather software firm in Pennsylvania whose clients includes Kohl’s, Payless, Ross and Lands’ End, says weather can cost retailers an average of 5 percent of sales each year. Retailers either sell the wrong product or fewer people visit a store because of a storm.
Between Nov. 1 and Dec. 19, Planalytics estimates specialty apparel retailers have generated about $421 million in fewer sales than the same period a year ago because of the weather. And that number doesn’t even include clothing-heavy department stores. The total loss will easily surpass $500 million by the close of 2015.
The numbers “reflect the reality that consumers had less interest in shopping for coats, sweaters, hats & gloves and other seasonal apparel when it was so warm out,” said vice president of marketing David Frieberg. “When you’re wearing shorts and a T-shirt as you walk across the parking lot and into the mall, a new coat is not top of mind.”
Nationally, outerwear sales fell 10 percent, with St. Louis and New York declining 14 percent and 20 percent respectively, according to Planalytics data. (New York was a tropical 66 degrees on Christmas Day, about 26 degrees warmer than the city’s historical average.)
Weather’s precise impact on retail has always been hard to quantify. A 2000 study by the Federal Reserve concluded that unusual weather had a “modest but significant” impact on monthly sales figures. But the study noted that fewer sales one month tended to be balanced out by higher sales the following months.
Retailers, though, are most vulnerable during events like the crucial holiday shopping season, which can account for 30 percent of total annual sales.
Poor response to forecast
Blaming poor holiday sales on a well-known weather event points to a larger problem with the apparel industry, said Brian Kilcourse, founder and managing partner of RSR Research consulting firm. While general merchandise retailers like Home Depot and Walmart have embraced advanced analytics, clothing companies, dominated by artistic “merchant princes,” largely still rely on instinct than data to make decisions, he said.
“The science of retail really lags” in the clothing business, Kilcourse said.
El Niño did not come out of nowhere. Apparel retailers had plenty of opportunity to adjust their holiday assortments accordingly but didn’t respond fast enough or at all.
“Most retailers recognize that the weather can help or hurt their performance,” according to a Planalytics report. “Few proactively manage its impact. It is common, for example, to see companies point to the weather as a reason for disappointing results. This is usually where the attention to weather starts and ends, until it happens again.”
Gap, for example, said November sales at stores open for at least a year — also known as comparable sales or same-store sales — fell 8 percent compared with a 6 percent gain during the same period in 2014.
“Not to make excuses (but) October was the warmest October ever, and we’re still seeing the temperatures in the Northeast pretty warm,” Gap CEO Art Peck told investors, “which obviously means people aren’t necessarily ready to buy into sweaters and outerwear.”
Sounds like Peck was making an excuse to me. But he was hardly alone.
Macy’s, the nation’s largest department store, said comparable sales in the third quarter dropped 3.9 percent partly because of warmer weather.
“The weather has not helped with the warm temperatures experienced across the country,” Macy’s chief financial officer Karen Hoguet told analysts. “Our sales of cold weather merchandise, such as coats, sweaters, boots, et cetera were significantly below last year in the quarter.”
Some adjust quickly
Not all apparel retailers have been slow-witted. Some companies have already demonstrated they can respond quickly to outside forces. For example, “fast fashion” retailers like Uniqlo (Japan), H&M (Sweden), and Zara (Spain) have developed nimble supply chains and thus can rapidly get clothes into U.S. stores that consumers want and just as quickly remove them once the demand dissipates.
In general, more companies are basing decisions on a wider range of data, including the economy, social media sentiment, weather, and even politics, Kilcourse said. It’s a lesson that some American retailers, who so far have proved no match for a phenomenon as predictable as El Niño, should take to heart as the world becomes increasingly connected and dynamic.
After years of weather-related losses, “what will it take for fashion retailers to follow suit?” Kilcourse said.