5 Myths About the Weather & Its Impact on Retail
It is 30°F and there are snow flurries, what does that mean for sales? The answer could vary in Buffalo as apposed to Baltimore; it also matters what time of year it is, is it January where light flurries are expected, or April? Depending on the retailer or sector— Target versus BJs, or mall-based versus online, the answer could also be very different. The influence that weather has on consumer activity is multifaceted and temperature or precipitation data is easily misunderstood, which can lead to confused applications.
Can Weather Be Planned For?
Yes! The first myth is that action cannot be taken ahead of time considering weather. It is true that predicting specific occurrences can be difficult, however, approaching weather patterns as “a force that can’t be reckoned with” can lead to significant miscalculations in sales or inventory forecasting. Through planning, localized strategized, and accurate staffing, business’ can appropriately account for weathers impact.
Although most companies base their yearly plan on the previous years weather, that is an incorrect approach considering weather only repeats 15 percent of the time. Businesses that remove the historical impacts of weather can drive a 20-80 basis point annual improvement in profitability just in inventory management. By increasing total enterprise forecast accuracy between 2 and 6 percent on average, and up to 50 percent for specific product categories.
When localizing strategies, retailers should avoid error and over simplification by considering both the location of sale and appropriate season when creating an approach. By focusing on weather driven demand calculations, retailers can adjust staffing and quickly accommodate the different store traffic levels, therefore increasing the efficiency of the store and adhere to budgeting goals.
It Won’t Just Even Out In The End
It is true that bad weather and good weather within one year will hurt and help a company. However, just because there is a mix of both does not mean that in the end there is an even result. Timing, location, strength, and duration of favorable or unfavorable weather are all important variables that can determine companies overall profit. If a blizzard keeps people indoors for a considerable time, that profit lost is never made up, or if spring starts later, projects are often downsized rather than just done completely later in the year.
Weather Still Effects Consumers During The Holidays
People won’t still shop during the holidays regardless of the weather. The weather will effect whether someone can leave and go to the store as well as what is being purchased as well as what is left out of the cart.
When and where those weather-driven demand changes occur directly affects profitability. Slower sales earlier in the season can often lead to earlier and/or steeper markdowns. However, there is a much better likelihood of maintaining profits if the season starts strongly and inventory moves efficiently.
Weather Only Effects Seasonal Products
Obviously, item sales like sunblock and road salt can be effected by the weather, but many products that have no seasonal value also fluctuate due to weather conditions. Day-to-day changes in temperature and precipitation that influence consumer shopping patterns and behaviors can account for 90 percent of annual weather driven sales.
If good weather allows people to shop for seasonal items, there is a good chance they will also pick up additional items. If the weather stops a customer from shopping, a business is going to notice a fall in sales across the board of both seasonal and normal items.
Deweatherizing sales histories to correct weather-based sales misrepresentations can determine forecast accuracy improvements; this will cause measurable financial benefits by increasing in-stock levels and reducing inventory-carrying costs.
Weather Impacts Online Merchants As Well
Weather can impact website traffic, just as it does brick-and-mortar store traffic. Extreme events, as well as simple day-to-day changes in weather, can drive consumers to stay indoors and drive spikes in website traffic. Equally, a warm sunny day may bring more consumers into stores and away from their online shopping carts.
By leveraging weather analytics, businesses can understand the specific times and locations to deliver a product or brand-specific message to a consumer at the exact time they are realizing the need to make a purchase. Web analytics (site hits, conversion rates, costs per conversion, etc.) can help validate the success of these campaigns.
Taking The Next Steps
Measuring the weather is the first step to managing it. Analyzing historical demand, and transactions to weather helps retailers recognize how much weather typically impacts demand across time and geographies.
Once the impact of weather is determined, retailers will often share this information with key suppliers to understand performance and collaborate on future actions such as replenishment, promotions, and end-of-season inventory management.
Creating a weather-neutral baseline will assist in creating more accurate budgets and demand predictions. Instead of using the unhelpful data from last year’s weather conditions, retailers will gain better visibility to more efficiently identify when, where, and how much demand will change.
Weather dictates many decisions made on a daily basis. These daily decisions have an apparent and large effect on the overall course of commerce and influence performance across businesses. Addressing the influence of pricing in business is a common practice of retailers, and the impact of weather should hold the same priority within the company.
About This Research
“5 Myths About the Weather & Its Impact on Retail” was developed by NRF in partnership with Planalytics, a business weather intelligence firm, leveraging Planalytics data on more than 10 trillion sales transactions and historical analysis of the impact of weather on customer demand.