Tax Refunds, Marie Kondo and the Weather

In a (great!) article published on Forbes.com this past weekend retail contributor Pam Danziger pointed out 3 trends that are converging to create new demand for spring fashion this year:

  • a later tax fund windfall
  • Marie Kondo-driven closet cleaning
  • much warmer April weather compared to last year

See: 3 Trends Are Converging To Drive New Demand For Fashion Retail

For the first two trends I recommend you read the full article — it’s a very interesting take, especially the Marie Kondo-effect.

For the weather portion, Pam and I chatted on Friday and you can get the jist of our conversation from the snippet below.


The Weather Company just released its spring forecast, and Paul Walsh, IBM’s global director for consumer strategy, says it couldn’t be better for fashion retail. After a particularly late winter, spring will come early this year with milder weather than last. It will supply a favorable tailwind to fashion retail.


While fashion retailers think in terms of seasons, consumers react to weather. “Now a days, we don’t buy based on the calendar; we buy based on how we feel. For seasonal apparel, the switch is turned on when it feels like spring,” Walsh told me. “Only then do we look into our closets and say it is time to update.”


It’s what Walsh calls the “cabin-fever effect.” Last year it happened quite late as spring didn’t really turn until late April and early May. Combined with an earlier than usual Easter last year, people didn’t feel like it was time to refresh their wardrobes until much later in the year.


This year will be different, as a late Easter, April 21, will give a longer runway to sell spring and summer fashions. “When it starts to feel like spring, we will see an extra amount of demand,” Walsh predicts, which should start to happen next week.


Given the differences in last year’s and this year’s spring, he sees retailers will benefit from good weather-driven comps. “Our predictions show that it will be a warmer than normal April,” he says, noting that The Weather Company is a subsidiary of IBM.

I’ve been and continue to be very bullish on spring weather-driven demand this year — particularly for fashion retail.

See: Expected Milder Spring a Godsend for U.S. Retail

As a recap, here are the 4 reasons (incremental to the trends Pam noted) that will drive a weather-driven tailwind to spring fashion this season:

  • An incredibly easy weather comparison to last year.
  • Cabin fever. It’s been a late winter with a colder than normal February and first half of March. When the weather breaks consumers will be breaking out, and spending. It happens every year and it will likely happen 3 or 4 weeks earlier this year.
  • A later Easter means a longer pre-holiday selling period with weather conditions that will be much milder than last year. More time to shop due to the earlier break to spring weather means more money in the cash register.
  • The weather impact is greater than ever due to the combined effect of better forecasting, mobile access to more accurate forecasts and the synergistic impact of social media.

Transforming retail in a changing world

Retailers feel the pressure of bad weather where it counts — right in the earnings.

The impact is pervasive and the effect can be profound. This was very evident this year during the “spring” transition season when an early Easter combined with the coldest Aprilsince 1997 took a big bite out of sales and profitability for many U.S retailers.

Of course this is not just a US issue — the impact of weather on consumers knows no boundaries.

A case in point is the devastating retail impact from the so-called Beast of the East in western Europe and, especially, the UK.

The Weather Ate My Homework

The impact of weather on sales has been historically viewed as an uncontrollable negative risk and retailers by-and-large have planned their businesses with a mostly anecdotal and non-systemic view of the weather influence on customers.

In fact, according to a recent study conducted by IBM’s Institute of Business Value (IBV), 58% of retail executives surveyed believe that weather has a primarily negative impact on margins while only 18% have a positive view.

The outlook on operating costs was just as bleak. Of the executives surveyed, 66% view the weather as having a negative impact. Only 8% had a positive outlook.

This combination of what has always been seen as an unmanageable risk and the profound (and growing) impact of weather on consumer behavior is what leads to “but-for-the-weather” comments in earnings calls — what Wall Street analysts call, often unfairly, the weather excuse.

Of course the weather is not simply an excuse for shifting consumer buying patterns — it’s a bona fide reason. 

What’s changing (as indicated by the IBV weather study) is that retail leaders understand that changing demand caused by changing weather doesn’t mean customers aren’t spending. 

It just means they are spending on items that they need as opposed to what the seasonality would say should be sold.

The times (and seasonalities) are changing and that’s changing how retail leaders are, literally, re-imagining their approach to managing the weather problem. 

The Paradigm? Changing!

“Know the enemy, know yourself; your victory will never be endangered. Know the ground, know the weather; your victory will then be total.” — Sun Tzu 

One of the biggest takeaways from the weather study wasn’t that the retail C-Suite understand the importance of the impact of weather on their consumers (literally 100% agree).

See: Just Add Weather — How weather insights can grow your bottom line

Rather it was that they understand that by better integrating weather-driven insights (as opposed to simply tracking the weather) into both demand and supply chain systems as well as in store operations, they can better serve their customers and, in-turn, create significant earnings / share growth … all while reducing costs.

In just one example, our research suggests that a retail organization which weather-optimizes their up-sell/cross-sell rate can increase their revenue by $45M for every $1B of in-store sales.

When applied strategically across the entire retail ecosystem, the retail C-suite participants we interviewed estimated (depending on the sector) up to a 5% overall revenue opportunity and up to a 10% cost reduction opportunity.

See: How Marketers are Harnessing the Power of the Weather
See: The Weather Company Now Also Forecasts What You’ll

Weather trumps Trump!

Coincident to the IBM study, S&P recently also published research on the increasing impact of weather and climate on earnings for companies in the S&P 500.

Here’s a quotable quote:

“A review of the earnings call transcripts of S&P 500 companies in the past ten years revealed that “climate” and “weather” were among the most frequently discussed topics among executives, even more than “Trump”, “the dollar”, “oil”, and “recession”.

Following are some of the key takeaways from S&P’s research.

It’s clear from both pieces of research that the impact of weather on corporate earnings is growing and there is a growing realization from the C-Suite in a need for an integrated and scalable weather-solution.

You can download the entire S&P research report here:

The Effects of Weather Events on Corporate Earnings are Gathering Force

Getting Started

Leading retailers are approaching the weather opportunity strategically understanding that the real benefit lay in the systemic integration of weather insights across the entire enterprise.

Following are some of the leading business practices and technical challenges we’ve identified as part of the IBV study and work we are currently doing with retailers across the globe.

The times? Changing! 

“You better start swimming, or you’ll sink like a stone … ” — Bob Dylan 

Whenever you can quote a Bob Dylan verse in a LinkedIn post it’s a good day. 

Of course Bob wrote this iconic lyric in the early ’60s and the theme was much broader and profound than the topic of retail sales and demand generation and fulfillment. 

But, the combination of a changing climate / increased weather exposures and consumers that are more connected, more demanding and with more retail choices means that rethinking weather integration into retail systems is no longer an option. 

For retail C-level exec’s at least, it’s becoming clear that, in fact, it does take a weathermanto know which way the wind blows.

The Resilience Imperative and the Power of Data

 

I stumbled across this video of my presentation at the Sun Valley Forum from the Summer of 2017.

Paul Walsh, Director, Weather Strategy, IBM Global Business Services/The Weather Company spoke at the Sun Valley Forum 2017.

Rethinking Weather: The Resilience Imperative and the Power of Data.

In a time of increasing weather chaos, weather data is empowering companies, saving ecosystems, protecting communities, engaging consumers, and informing investors to build a more resilient world.

Please see www.sunvalleyforum.com for more information; hosted by the Sun Valley Institute, www.sunvalleyinstitute.org.

This event is a particular favorite!

Each year the Sun Valley Forum gathers innovators from government,
business, nonprofits, investment, and academia, as well as local leaders,
visitors, and residents, to share strategies, broaden thinking, and ignite
new partnerships at this groundbreaking event with a goal of building
greater resilience. Environmental shifts and economic interdependence,
as well as social and political upheavals, call for proactive leadership to
build resilient communities, companies, nations, and economies.

You can see all the presentations from the last two years HERE.

 

Weather Data is Transforming Consumer Demand Planning

“It’s tough to make predictions, especially about the future.” — Yogi Berra

For retailers and CPG companies, predicting what consumers will be needing and wanting, months into the future, is an exercise fraught with uncertainty and risk.

Complicating this is the realty that about one-third of consumer products and services (representing revenues of approximately $3 trillion in the US) have some degree of weather and climate variability.

Complicating this even further is the reality that the impact of weather on consumer behavior is increasing.

The combination of a changing climate and consumers that are more connected, more demanding and with more retail choices means that the effect of the weather (and the weather forecast!) on consumer demand is increasing.

This uncertainty is creating increased risk.

It’s also creating opportunity.

As I noted in a previous post, retailers have historically viewed weather as an uncontrollable and therefore unmanageable risk factor — what Wall Street analysts call the “weather excuse.”

That paradigm is now rapidly being turned on its head — rather than a risk, leveraging digital insights mined from weather data is creating opportunities to better serve customers, capture market share and delight shareholders.

An example of how this works is in demand planning — we know from benchmarking analysis done by colleagues at the IBM Institute of Business Value that a 1% increase in demand forecast accuracy yields $10M in revenue for every $1B in sales.

We also know, from work we’re doing with retailers in the US and Europe, that including weather forecast data in demand forecasts for seasonal product categories increases forecast accuracy 20% or more.

See: Just add Weather

When you do the math it’s clear that the value from integrating weather into demand forecasts is far beyond table stakes — in fact, combining weather information with other external variables will be literally transforming how consumer businesses are serving their customers.

And it’s happening now.

I’m looking forward to discussing this at the Climate City Expo on April 2d in Asheville next month.

CCX: Business

“Ensuring humanity’s future in a changing climate presents unique challenges and opportunities to drive innovation. CCx: Business is a cross-industry conference that convenes business executives, entrepreneurs, climate scientists, investors, and many more to explore solutions at the leading edge of climate resilience.”

If you’re coming to the event let me know. Would love to see you there.

If you’re not, here’s a short video that will give you a sneak peak of what I’ll be discussing.

Four Reasons the Polar Vortex will be a Boon for Spring Retail

As widely predicted the dreaded polar vortex is back and it has “seized the Midwest with the coldest weather in a generation.”

These kind of events — if they persist for weeks — can have huge negative impacts on consumer spending and economic activity.

For context, check out this article by Andrew Freedman on the 2014 Polar Vortex event:

“Frigid Winter Takes a Toll on the Economy

But the impact of short spells of bitterly cold weather, in the winter, typically don’t have a major long term impact on consumer demand and retail.

Why? Seasonality. It’s supposed to be cold in winter and retailers and consumer packaged goods companies generally plan for January and February to be, well, wintery.

Where the impact of colder than normal and extreme weather gets dicey for consumer businesses is when it persists for long periods into times where it’s supposed to be getting warmer (i.e. spring). It’s what happened last year.

See: Q1 / 18’s Big Retail Chill

The extreme and life-threatening cold we’re currently experiencing will certainly have a major short -term impact.

But the key here is short-term.

By this weekend and into next week the forecast is calling for an incredible warm up.

For example the temperature in Chicago is expected to increase 63 degrees (-22F to +41F) between tomorrow and next Monday (2/4).

Even with a continuation of these kind of volatile spells of extreme cold across the eastern half of the country in February, the negative impact on retail is likely to be minimal for the reasons noted above.

On the contrary, a cold late winter this year will likely contribute to strong and high margin early spring sales.

4 Reasons for a Retail Silver Lining this Spring

For most retailers in the U.S. the fiscal year starts in February with the spring quarter spanning February through April.

Along with the third quarter (August – October) the spring quarter is the most exposed to weather volatility and hits to profits.

Again, for context, last April was the 13th coldest in the US in 124 years of history.

That coincided with a very early Easter (week 5 March) and it had the effect of essentially kiboshing the normal first quarter Easter sales stimulus.

So there’s four key reasons the late winter polar vortex this year will likely be a boon for spring retail:

  1. An incredibly easy weather comparison to last year.
  2. Cabin fever. There’s still a lot of winter to come and the predictions are continuing to call for periods of very cold weather right into March. When the weather breaks consumers will be breaking out, and spending. It happens every year and it will likely happen 3 or 4 weeks earlier this year.
  3. A later Easter means a longer pre-holiday selling period with weather conditions that will be much milder than last year. More time to shop due to the earlier break to spring weather means more money in the cash register.
  4. The weather impact is greater than ever due to the combined effect of better forecasting, mobile access to more accurate forecasts, and the synergistic impact of social media (weather is nearly always a number one topic on social — it even trumps sex).

When you combine all four elements — easy comp, earlier break, later easter and the weather “forecast factor” — it’s adds up to a very silver lining for US retail this spring.

Weather On the Money

A favorite part of my gig with IBM Services is that I get to travel around the world visiting clients and colleagues spreading the gospel of weather analytics integration.

One downside though: having a global role means that I’m often either somewhere, going somewhere or coming back from somewhere (often in a middle seat).

But this is a small trade-off to an awesome job. No complaints.

This weekend I’ll be traveling to Europe for a week of client meetings and won’t be available to do my regular Sunday appearance on The Weather Channel.

For this week I thought I’d re-post a video and accompanying article from an appearance I did earlier this year on CNBC On the Money (formerly the Wall Journal Report) with Becky Quick.

  • Quick side note: I’ve been doing periodic appearances on CNBC for at least the past 15 years and have known Becky the whole time. She reminded me the last time I appeared with her that I gave her a weather forecast for her wedding — I was right. For the record I’ll never do a wedding forecast again. Far too risky and I’m quitting while ahead.

You can read the article and watch the video via the link below.

Winter’s chill can take a big bite out of businesses, here’s how they cope

As the U.S. East Coast recovers from a weather system that dumped several inches of snow across the region earlier this week, bone-chilling temperatures are expected to drive the mercury to record lows this weekend.

Meanwhile, the big freeze that’s gripped much of the country is having another chilling effect—one that costs money.

“The entire Eastern half of the country is frozen right now, and with that the economy sort of slows down ,” Paul Walsh, a business weather analyst and meteorologist told CNBC’s “On the Money” in an interview.

“It doesn’t grind to a complete halt, but you can imagine that people are not out,” Walsh explained. “They’re not doing, or spending the same kind of money on the same kinds of things.” That aspect is important, given that businesses normally see brisk traffic immediately following the holiday season.

“People are basically hunkered down in their homes and not ‘out and about,” Walsh added. “If it happens for an extended period of time, it can have a direct impact on the ebb and flow of economic activity. It impacts the entire economy.”

The unusually cold weather has even impacted the normally balmy South. This week, it was so cold in Orlando, Florida that water theme parks—including Disney’s Typhoon Lagoon and Sea World’s Aquatica—closed amid temperatures hitting the 40’s.

“They’re going to be losing a lot of revenue in the times they’re shut down,” Walsh told CNBC, meaning that spending at places “like restaurants and travel, a lot of those are lost forever.”

Walsh, who is director of weather strategy at IBM Global Business Services, describes his niche as the “intersection of weather and consumer behavior.” IBM sells weather data directly to business clients, including major airlines and retailers.

“We now have the capability to not only predict the weather, but also to be able to sense how it’s going to impact consumers,” he said.

And weather means big money, particularly in the wake of a brutal hurricane season that saw catastrophic storms batter Texas, Florida and the Caribbean. The unpredictable nature of storm season means businesses have to find ways to calculate the associated risks.

“The interesting thing that’s happening now is that more and more companies are able to take the weather data, and use analytics and even use artificial intelligence and define from that data how the weather is likely going to be impacting what you and I are going to be needing,” Walsh said.

The next step is that data is being “pulled into retailers’ replenishment and forecasting systems,” he added. That information is then used to help select inventory, by estimating and anticipating future consumer buying demand.

“Retailers have been using weather data forever, but they’ve not really been doing it in a way that’s integrated and built into systems,” Walsh said. “That’s changing now in a really, really big way.”

On the Money airs on CNBC Saturdays at 5:30 am ET, or check listings for air times in local markets.