YOU CAN’T PLAN FOR THE WEATHER

Because specific weather events — heat waves, snow storms, cold snaps, etc. — cannot be precisely forecasted in advance, it can be challenging for businesses to react to near-term opportunities or risks. This is particularly true for retail, where decisions around demand planning, supply chain operations, labor scheduling, marketing and more are determined weeks, if not months, in advance. However, viewing the weather as “a force that can’t be reckoned with” can lead to significant miscalculations in sales or inventory forecasting. Instead, retailers should proactively account for weather’s impact in three areas of business:

PLANNING: The weather — and its impact on business — only repeats from one year to the next about 15 percent of the time, though it’s common for plans to be heavily based on or influenced by the prior year. This leads many companies to unwittingly embed the previous year’s weather variations and sales impacts into their business forecasts. Retailers can remove much of this builtin error by “deweatherizing” their sales history. This process uses weather-driven demand calculations to systematically remove weather-based sales distortions and provide a cleansed, normalized baseline for planning. Weather-driven demand is the quantification of the impact of weather — and weather alone — on demand for a product or service. Businesses that remove the historical impacts of weather can drive a 20-80 basis point annual improvement in profitability just in inventory management. This is accomplished by increasing total enterprise forecast accuracy between 2 and 6 percent on average, and up to 50 percent for specific product categories.

LOCALIZED STRATEGIES: There is a danger of creating false answers through an oversimplified approach. Without analyzing weather and sales information at both the market and the weekly level, it is easy to get the weather drivers and volume impacts wrong. For example, an assumption that every one-degree temperature increase delivers a 7,500-unit sales increase will be inaccurate when looking at different locations, distinct times of the year and various merchandise categories.

STAFFING: Retailers are not only managing the cost of carrying inventory; they are also charged with staffing stores
appropriately to manage the influx of shoppers. Weather has a direct influence on store traffic. By utilizing weatherdriven demand calculations, businesses can prepare for and quickly adjust store staffing to better accommodate varying traffic levels, maximizing the efficiency of individual stores and better managing to budgets.

 

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