By Evan Gold
The winter of 2014 brought record cold and snow throughout North America, and its impacts on business and consumer spending were widespread and significant. How impactful was it? Well, for the S&P 500 companies, the word “weather” was mentioned in almost 200 earnings calls from January through March, an 81 percent increase compared with last year.
As retailers look back on this past winter, there are several lessons to be learned which can -- and should -- be applied to winter 2014-15 plans. The lessons are just a few tips to help retailers “weatherize” their businesses to improve how they manage through winter weather volatility.
Lesson 1: It Ain’t Over Till It’s Over
While Christmas falls on the same date each year, Mother Nature doesn’t always follow a traditional calendar. Most retailers are set up for spring by February or March, but this year cold temperatures and snowfall lingered in key markets, particularly in the Northeast and Midwest. The reality is, spring doesn’t come early (or “on time”) every year, so companies that can match the extra end-of-season inventories with markets where need-based purchases will be extended can gain incremental sales and end the season clean, from an inventory perspective.
Lesson 2: You Can Have Too Much of a Good Thing
While cold and snow enabled many seasonal categories to have a record-breaking winter, the extreme conditions caused people to hibernate for an extended period of time. Unfortunately, from a foot traffic perspective, the most impactful days likely saw a drop in store traffic and sales, as consumers (and employees) could simply not get out to the stores. As businesses think about next season, there are several strategies to employ to mitigate these "lost days."
First, plan for an increase before the event as well as after the event. Loading in inventory on the forecast of snow and cold is critical to meet consumer demand regardless of how the weather actually pans out. Second, businesses can message to their consumers in advance of major weather events. A simple activity, such as sending a weather-relevant e-mail to customers with a focus on key seasonal items, helps ensure that customers will come to your business when they are purchasing to need. Third, businesses should de-weatherize their historical sales so they plan from a weather-neutral baseline going forward.
Lesson 3: Media Drives Demand More than the Actual Weather
As we live in a world of constant connectivity, there is continuous access to information. From a weather perspective, consumers get their local forecasts on multiple devices and media outlets. Weather is one of the most local items to each person and therefore, it’s typically the first thing people check on when they wake up in the morning, and one of the last things they look at before going to bed. From a business perspective, consumers often make purchasing decisions based on weather forecasts, rather than the actual weather that occurs. Therefore, if the forecast calls for 6 inches of snow in Chicago, many consumers buy winterwear, shovels, etc., in anticipation of snow. How much snow actually falls is almost immaterial from a business perspective.
Lesson 4: 2 Inches of Snow in Albany Isn't the Same as 2 Inches of Snow in Atlanta
Consumers are acclimated to the environments they live in. A forecast of 2 inches of snow in January in Albany, N.Y., is hardly newsworthy, while the same forecast in Atlanta resulted in schools being closed, transport centers shut down, and consumers gearing up to be housebound. Having a clear understanding of weather’s impact on consumers on a market-by-market basis will help determine an actionable plan for your business.
Lesson 5: The Hangover Effect Is Real
While markets that experienced a record cold and snow-filled winter should not expect to have conditions as extreme next winter, there's a “hangover effect” for the home center space that is real. Analysis of historical spending patterns shows that the forecast of the first winter event in the season following an active season drives significant demand for seasonal products. Those consumers who decided to forgo a snow thrower this past winter are more likely to make a purchase during an early-season snowfall next season, regardless of the accumulation amounts. Therefore, businesses should expect a nice spike in preseason and early-season demand for snow-removal items.
Evan Gold is VP of client services for Berwyn, Pa.-based Planalytics, a leading provider of business weather intelligence.
winter 2014, Planalytics, business weather intelligence providers, weather effects + retail sales