Supply Chains—Not Weather—Determine If Outerwear Sales Run Hot or Cold
By: Tara Donaldson
The days of department stores selling heavy coats in July may be behind us thanks to unseasonably warm winters and consumers’ unwillingness to spend on cold weather gear unless it actually gets cold. Left with overstock inventory—and the subsequent deep discounts—one too many times, the industry is having to readjust its supply chains, re-assort its merchandise and re-evaluate how it analyzes seasonal data.
Though this September will be remembered for its spate of destructive hurricanes, last September is on record as one of the warmest, which put outerwear sales on pause and saw many retailers still toting coats into the next season.
“Outerwear sales did get off to a pretty miserable start in 2016 due to the weather as both September and October came in as their warmest in over 50 years,” said David Frieberg, VP of marketing for weather analytics firm Planalytics. “Compared to a ‘normal’ weather year, last year’s conditions depressed demand for outerwear by 11 percent nationally over the two months. Weak sales on the front-end of the season often impact the balance of the season as retailers and brands react and adjust. Orders get reduced or canceled and bloated inventory levels lead to steeper markdowns. Many businesses undoubtedly saw a dip in category sales for the season and reduced margins.”
Assortments & Timing
This was true for some brands from Li & Fung, which saw inventory backup and heavier promotions than planned in the fourth quarter last year. For outerwear to be profitable, Li & Fung EVP Jason Kra said, pre-Christmas cold spells are key.
“The issue for many of the big domestic brands would be inventory they are holding for in-season sales once cold hits,” Kra said. “So it made in-season purchasing softer, but we have also seen many brands change from real heavy outerwear to transitional outerwear. This change to different weights has been to accommodate the changing climate. If business is planned on transitional weight to start, with mid-weight in the middle of the season, with true winter weight later, you can have balance regardless of what happens for the weather.”
For Weatherproof Garment Co, a leader in outerwear, sales were “off and sluggish” in last year’s fourth quarter, thanks to too-warm weather in the fall, and the company has started offering more “transitional weight” items, according to VP of men’s outerwear Mark Emisarski.
“It seems the weather seldom fluctuates in our favor, it only ever seems to get warmer, so we add more lightweight items to our fall assortments, merchandise into light packables, lighter weight shell fabrics, less polyfill/down and pray for snow,” Emisarski said.
Beyond adjusting its assortment, Weatherproof is also buying closer to season and bracing for whatever the weather will bring.
“We are just booking closer to actual orders, but not to get caught short if the weather does turn cold sooner. We need to buy with shorter lead times. We also try to help focus our customers on sharper priced product,” Emisarski said. “We will be buying into fewer styles that we think will be in demand. We need to force our retailers to focus on key styles only, utilize the same shell fabrics in multiple styles and spread our production around to multiple factories to ensure we have access to additional production space if needed.”
The idea is really to make decisions at the nth hour, but to do that means shorter, tighter supply chains.
“We look to shorten lead times for our customers to give them the ability to commit later in cycle compared to previous years. Later decisions means better decision making, better knowledge on what is the right amount, the correction fashion and the ability to be more flexible and limber through the supply chain,” Kra said. “If we can get indicators early on, say by end of September, it is possible to be back in stock for holiday for some items. But all depends on the early read and indicator. In recent years there has not been much outerwear chase, but we possess the ability to turn extremely quick if the need arises.”
Data & Its Impact
Because the last handful of winters have been warmer than normal early in the season, Kra said markdowns haven’t been quite as bad as in years past.
“We have grown accustomed to planning conservative for inventory levels and flowing it more strategically,” he said. “For the most part, in real seasonal businesses, to create a plan you take the past three years’ stack of real numbers sold and take an average, and that is the quantity you probably should carry for your inventory level. Things are never as good as the best year and never as poor as the worst year.”
Blaming the weather every time a poor Q4 report comes out isn’t a viable way to do business. For outerwear brands and retailers in particular, weather volatility is as sure a challenge as supply chain setbacks and should be planned for as anything else.
“With store-based retail being pressured from online and a changing consumer and these same chains remembering the dismal sales from last autumn, it would not be surprising to see leaner inventories coming into this season,” Frieberg said. “But is the category sales trend flattening or falling? Companies need to calculate exactly when, where, and how much sales increase or decrease as a result of this variability. Companies should start their planning process by first correcting for the weather-bias that is embedded in their sales histories. By doing so, the year-to-year shifts in weather-driven opportunities and risks can be better planned. Retailers can identify the regions where sales slumped due to the weather and plan for stronger sales the next year. Conversely, companies can protect against over-inventorying the regions that benefited from weather-inflated sales the prior year.”
Weather data, if used correctly, could even be used to drive shoppers to make purchasing decisions.
In 2014, according to an article in Bloomberg, Walmart studied weather patterns with regard to when consumers were buying berries and found that they were more likely to snap up the fruits when it was slightly windy and cooler than 80 degrees outside. Researchers then narrowed the trend down by zip code, rearranging local displays and ads accordingly, and berry sales soared 300 percent.
The outlook for weather this fall/winter?
Citing data from Weather Trends International in a recent Pulse on Retail note, analysts at Cowen and Company said cooler temps could help traffic trends in the coming months.
In the first week of September, the U.S. was -2.7° cooler vs. LY, and -1.1° below normal, Cowen said. “Precipitation was +58% vs. LY, and +76% above normal. Hurricane Harvey brought unprecedented rain to southeast Texas over the weekend as the storm made landfall last Friday. The North saw much cooler weather and it was the coolest start to September in eight years. The West experienced the hottest start to September in 26+ years,” according to the note.
Cowen analysts said long-range weather could be more favorable for September to November comps at retailers like American Eagle, Gap, Hudson’s Bay Company, Nordstrom, J.C. Penney, Macy’s, Burlington, T.J. Maxx and Walmart, though those weather patterns may be less favorable for Costco based on Weather International’s views of long-range weather patterns and store penetrations.
As retailers keep their eye on the forecasts, Frieberg said they need to remember not to overcorrect based on past experiences. “2017 will get off to a better start when the very warm temperatures from last year do not make a repeat appearance,” he said. “Those retailers that cut inventory back too much will be dealing with a different issue in 2017—stock-outs.”