3 Myths about the Weather and Its Impact on Sales
Myth 1: It’s the weather! There’s nothing you can do about it.
Many businesses feel that planning for weather’s impact on sales is an exercise in futility. After all, it’s a notoriously fickly and uncontrollable external factor and no forecaster can reliably predict it beyond the next week or two. That may be the reality, but it doesn’t mean the weather’s impact on your business cannot be effectively managed.
Companies address uncontrollable outside variables all of the time and the weather should be no different. No one knows with certainty how the value of the dollar will change or how strong GDP growth will be over the year. Yet, companies employ hedging programs to manage foreign exchange risk and they incorporate macroeconomic assumptions into their plans. So clearly, ignoring the weather is not the answer.
There are historical realities and statistical probabilities you can use to your advantage when dealing with the weather. Decades of analysis confirm a key fact – the weather and its impacts across a business only repeat from one year to the next about 15% of the time. However, it is common for plans to be heavily based on or influenced by last year’s sales. As a result, many companies unwittingly embed last year’s weather variations and sales impacts into their business forecasts.
You can remove much of this built-in error by “deweatherizing” your sales. This process uses weather-driven demand calculations by market and by category to systematically remove waeather-based sales distortions and to provide a cleansed, normalized baseline for planning. Deweatherizing improves forecast accuracy and typically returns 20-80 basis points of revenue to the bottom line each year by reducing lost sales and inventory carrying costs.
The annual inventory optimization gains are just the tip of the iceberg. Planning for demand shifts with weather analytics can also drive improvements in marketing, markdowns, and other operational areas. So there are quite a few things you can do about the weather. The first step is to stop putting yourself at an unnecessary disadvantage by ignoring weather volatility.
Contact Planalytics today to find out how we can help your company achieve greater profitability and success.