Register now for Planalytics’ 17th Annual Holiday Preview and Q3 Recap.
On this webcast, Planalytics will give an overview of the current business environment, and how we expect weather to influence consumers during the upcoming holiday shopping season.
When companies talk about the weather, it’s often to explain financial results. That’s doubly true for retailers, which have used weather to explain everything from a dip in sweater sales to low foot traffic caused by lovely summer weather.
But while weather information is undoubtedly important to retail companies which, obviously, stand to sell more snow tires and down jackets when it’s cold, an industry of meteorologists, researchers and analysts now helps retailers go beyond questions of what to stock, giving them insight into store-level operations and economic trends.
That information, experts say, can help companies benefit from — or, at least, minimize the damage caused by — fast-changing conditions.
“Weather is always a ‘risk-slash-opportunity’ because it always changes,” said David Frieberg, vice president of marketing for Planalytics, a weather analytics company serving the retail and consumer goods industries. “If gas goes up 10 cents, it might not change things. If the temperature goes up 10 degrees, it can have an immediate effect that’s meaningful.”
How retailers use weather info to run their businesses
When a retailer sells highly seasonal items, as much as 40% of the annual revenue from those items can be affected by changes in the weather, according to Planalytics. In most cases, however, that average is closer to between 2% and 8%, taking into account both extreme conditions and more commonplace fluctuations.
“Much more often than not, these daily, weekly, and monthly variances will have a greater impact on a company than the memorable, extreme events,” said Frieberg. “They can really help define when a season starts and ends for a retailer, when it peaks, and its overall strength.”
To manage the effect of changing weather conditions on financial results, experts say, retailers now use weather information in a range of ways. For example:
• In the U.S., Wal-Mart WMT, -0.97% uses long-range forecasts to help store managers prepare for weather events. Managers begin work as many as five days before an event is expected, according to Lucas McDonald, senior manager of emergency operations at Wal-Mart US, as stores make sure they’re prepared to keep doors, parking lots and delivery areas accessible.
• Companies use weather information to understand trends in the broader economy, said National Retail Federation Chief Economist Jack Kleinhenz. “Construction delays mean that people aren’t getting paid; you’re not able to spend,” he explained. “You have to try to gather as much data as you can on things that influence economic activity. You’ve got to hope for the best [while] you’re planning for the worst.”
• While weather data is obviously helpful in anticipating seasonal demand for items, it can also be used to precisely time deliveries, adjusting schedules to make sure items are in stock when customers need them. “When we see something like the South Carolina flooding, we need to make sure we stock stores with life-sustaining needs — flashlights and batteries and bottled water. For a winter storm, ice melt, shovels and salt,” said McDonald.
Sometimes that means overstock when weather is less severe than expected, leaving companies holding items they hope will be needed later. But weather changes may also only delay, rather than cancel, purchases, according to Kleinhenz: You might not eat out twice because one dinner was rained out, for example, but you might still head back to a sporting goods store for a new pair of skis.
…and now, here’s the weather forecast
This year, retail analysts are already adjusting expectations ahead of what is seen as a warm winter to come: AccuWeather predicts mild temperatures in the Northeast due to the strongest El Niño pattern in as many as 60 years. (More immediately, a tropical storm off Mexico’s coast has turned into a powerful hurricane.)
Forecasters expect higher temperatures, more rainfall in California, early season cold weather in the Northern Plains, and lower-than-normal precipitation in the Northwest and the Northern Rockies. The Southeast and Gulf Coast, however, should expect heavy rainfall and other severe weather. Analysts, meanwhile, are already using this information to shape their own projections.
A warm winter “should give retailers a boost, as consumers may be more willing to venture out to stores and see significant savings on energy bills,” wrote Cowen & Co., which uses data from Weather Trends 360, in a July report. “However, we do acknowledge warm temps may limit sales of outerwear and winter gear after two straight cold winters, especially in the Northeast.”
Weather-driven demand at apparel specialty stores such as The Gap GPS, -1.70% and Abercrombie & Fitch ANF, -2.07% is expected to fall across a variety of categories and locations in November, according to Planalytics, which predicts a 19% decrease in demand for items like hats and gloves in Indianapolis from the previous year, a 57% decrease in demand for ice melt in Salt Lake City, and an 11% decrease in sporting goods store traffic in Cincinnati.
And at mass merchants like Target Corp. TGT, -4.90% and Kohl’s Corp. KSS, -3.30% for the month of December, demand for women’s boots in Buffalo, N.Y. should increase 36% from last year, the demand for heaters in New Orleans should be up 47%, and the demand for hot coffee should be up 10% in San Diego.
Whatever the effects, Planalytics’ Frieberg says retailers must account for unusual short-term weather patterns — such as the flooding in the Southeastern U.S. this fall — as well as the routine when planning for future seasons.
“The chance that the first weekend in October next year will have major flooding and historical rainfall is minimal,” said Frieberg. “Retailers don’t realize it, but every time they use last year’s results as a basis for next year’s plan and they don’t adjust for where, when and how much the weather helped or hurt, they are essentially assuming conditions will repeat. They rarely do.”