The Mother of all Mother’s Days?

For retailers it certainly could be and there are 25 billion reasons why — but the weather ain’t one.

According to the National Retail Federation this year is expected to deliver the highest consumer spending to date.

WASHINGTON – Mother’s Day spending is expected to total a record $25 billion this year, up from $23.1 billion in 2018, according to the annual survey released today by the National Retail Federation. A total 84 percent of U.S. adults are expected to celebrate in honor of their mothers and other women in their lives.

With consumer sentiment at record highs and unemployment at record lows there’s really only one thing that could disrupt this sunny outlook.

The Weather

Mother’s Day is ranked as the third largest retail holiday of the year in the U.S (behind the Christmas holidays and back-to-school) and is, arguably, one of the most weather impacted holidays as well.

The fact that it’s a “day” means that an ill-timed storm or cold weather (as we’re seeing in real time) can have a dramatic and, in many cases, non-recoverable impact on sales and profits.

There isn’t much room for do-overs.

The Reverse Bath Tub

This is my new favorite weather–impact-on-retail-spending term as related by Home Depot during their Q1 earnings call last year.

I referenced this in a post I authored last month — it refers to the effect that weather has on driving the timing of sales of seasonal items from one week or month to the next.

It results in significant sales and margin volatility that can have a material impact on monthly and quarterly sales.

This year demand for seasonal products sloshed forward (see what I did there?) into April and out of May leaving a pretty challenging comp environment for retail sales in May and into June.

Cooler, Wetter, Weaker

While it may be a great Mother’s Day for retail overall  — as noted by the NRF — it likely won’t be great for all categories.

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Cooler, wetter weather will put a damper on demand for seasonal products

For example and perspective, my colleague Dr Mike Haydock is expecting about a 2% decrease in women’s apparel sales in May.

While he doesn’t publish a specific prediction for lawn & garden sales it’s pretty intuitive to expect a corresponding decrease there as well.

That’s bad news for the month of May (and Q2) from a retail fiscal calendar perspective.

But the good news is that the sales that pulled (sloshed?) forward into April were likely much stronger than last year and likely delivered higher margins.

So there’s that.

 

Why this Year’s Hurricane Season Could Have an Increased Impact on Consumers

That isn’t to say there will be more or less total storms (read on for that) but the overall impact on consumers is increasing and this year will likely be no exception.

Just like with global temperatures, the impact of hurricanes on U.S. consumers increases every year, but unlike the temperature (and sea level rise) this isn’t directly related to the changing climate.

The 6 Reasons

The biggest impact from a consumer and retail perspective doesn’t come from the hurricane so much as it does from the forecast of the hurricane.

Here’s why —

Forecast accuracy — hurricane forecasts are really accurate. Amazingly accurate. In fact, five-day hurricane forecasts are more accurate today then two-day forecasts 25 years ago.

The forecast factor — snide comments aside (I’ve heard all of them, believe me) the forecasts are so accurate that the vast majority of us rely on them — almost on instinct — to prepare for the onset of a storm.

Mobile phones— the combination of accurate forecasts, lots of lead-time and the fact the vast majority of consumers in the U.S. are getting the forecast delivered to them daily means more people are connected and effected. Not just in the direct path, but within the entire so-called “cone of uncertainty” — or what I call the “cone of certainty” as it relates to the impact on the people that are looking at the forecast.

Social media — Yes, everybody does talk about the weather. But now that discussion is amplified exponentially via social media. It seems like every storm threat grows larger, impacts more people and threatens Armageddon. Few live up to the billing (thankfully!) but from a consumer demand perspective it’s the message that matters.

Increased Exposures — There’s more of us with more stuff living in areas that are directly impacted by storms. Which means the impact of a storm forecast (due to more accurate forecasts and the forecast factor effect of mobile / social) has risen dramatically.

See: The Rising Costs of Hurricanes

Source: https://www.wsj.com/articles/the-rising-costs-of-hurricanes-1538222400

Recent history — we’ve experienced extremely high impact storms for the past couple of years and the memory of those (and the resulting B-roll) puts an exclamation point on every storm threat further fueling the pre-storm retail surge.

The 2019 Hurricane Forecast

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My colleagues at The Weather Company released their 2019 hurricane forecast this morning.

The prediction in terms of numbers is for a relatively average season with a bias towards more hurricanes this year.

Here’s a link to the full article by Jon Erdman and Brian Donegan:

2019 Hurricane Season Expected to be Slightly Above Average

A couple of very important points regarding the forecast:

– in terms of absolute numbers it will likely be relatively accurate;

– in terms of where the 7 hurricanes and 3 major hurricanes will go there’s no telling at this point.

Even if the season ends up with only half the number predicted and if the storm path is such that half of those hit (either directly or indirectly) the U.S. mainland the impact on consumer demand would be significant.

Americans Think Weather is Growing More Severe … But Most are Not Prepared

The Weather Company fielded a survey that was recently released and the results are supportive of the increased impact of storm forecasts.

While three quarters of all Americans think weather is getting more severe, less than half are prepared for it.

Combine that with the factors I noted above and it’s clear how the impact of these type of storms on consumers are amplified. It’s where the forecast factor creates the pucker factor.

You can read the whole report here:

74% of Americans Surveyed Think Weather is Growing More Severe; Less than Half are Prepared for an Emergency

Retailers Use Data and Weather Forecasts to Create Resiliency

Retailers understand very well the impact of hurricanes and tropical storms on their businesses and are getting increasingly sophisticated in the way they plan for these kind of events.

For example, using analytics to understand the historical impact of storms on buying patterns and then using predictive models and storm forecasts they can anticipate with great precision exactly what they need to have in stock ahead of a storm threat.

Additionally, most (if not all) large retail companies operate so-called war rooms where they manage the business in the face of these kind of events.

Their goal is to ensure the safety of their customers and staff and they move heaven and earth to have enough products in stock (before and after the storm) to meet the demand and support their customers.

I discussed this on The Weather Channel last year — you can watch the short video below.

Introducing The Forecast Factor Blog

Prior to IBM acquiring The Weather Company one of the part-time roles I played was as an on-air (and I use this term loosely) “expert” on The Weather Channel and weather.com.

You may remember me from such Weather Channel segments as The Forecast Factor with Paul Walsh or The Business Barometer with Paul Walsh.

Or maybe not. Or probably not. Or almost certainly not.

Never-the-less — I’m that guy.

And as part of the gig I spent nearly every Sunday morning at 07:20 and 09:20 eastern time doing a live segment, via Skype on The Weather Channel’s AMHQ Weekend show.

What no one saw was the fact I was almost certainly not wearing long pants when I was doing the interviews and my poor wife was trying to sleep in the next room.

After a couple of years (and being acquired by IBM) my friends at The Weather Channel decided to go in a different direction and I no longer needed to wake up every Sunday at 6 AM to re-boot my computer and do sound checks and put on a shirt and tie (but not pants!).

It was nice to have that time back, but, I’d gotten used to the routine and it was a helpful exercise to frame out interesting and consumable weather and consumer related stories that I could use as part of my current day job.

I decided shortly after stopping doing the segments that it might be a good idea to continue creating and sharing this content on my own using the technology at hand.

It’s taken me the better part of a year, but here it is.

Introducing The Forecast Factor blog, a labor of love where I can “unite my avocation and vocation” (see below) and where I’ll be sharing my thoughts and observations on the impact of weather on consumers and business.

This is my personal site and so, as the managing editor, I may choose to include off-topic (and possibly off-color) subjects periodically.benjismile

I will most certainly include photos of my assistant editor, Benji.

If you’re interested in getting updates you can subscribe HERE at the bottom of the page.

 

Two Tramps in Mud Time

But yield who will to their separation,
My object in living is to unite
My avocation and my vocation
As my two eyes make one in sight.
Only where love and need are one,
And the work is play for mortal stakes,
Is the deed ever really done
For Heaven and the future’s sakes.

 

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.

Expected Milder Spring a Godsend for Spring Product Sales

The Weather Company released their spring forecast yesterday and the news for consumer businesses is … great!

“After an extended cold period across much of the Northern U.S. during the last month, the pattern finally appears to be relenting as we head into spring,” said Dr. Todd Crawford, chief meteorologist at The Weather Company.

I wrote a post on the potential for this back in January.

Given the latest update I thought I’d re-up the message as the stars are aligning to produce a bigger than normal weather-driven boost to this year’s spring retail season.

Four Reasons the Polar Vortex will be a Boon for Spring Product Sales 

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.

For context, last April was the 13th coldest in the U.S. 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 seasonal retail products :

  • 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 (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 increased impact of weather on consumers — it adds up to a very silver lining for US retail this spring.

Climate Change a “Massively Huge”​ Private Sector Opportunity​

Climate change represents a profound risk to the global economy.

In fact, for perspective, President Trump’s administration assessed that in the U.S. alone the economy “could lose hundreds of billions of dollars — or in the worst-case scenario, more than 10% of its GDP — by the end of the century.”

A sobering assessment indeed, but also a compelling call to action.

As Sun Tzu is quoted as saying, “in the midst of chaos, there is also opportunity.” What was true in 500 BC is equally true today, and while the risks are real and profound, the opportunities for the private sector are equally real and profound.

I was speaking with a colleague on this topic last week and he noted that the opportunity for business to create value from sustainability is ” … massively huge.”

I think he was correct.

In fact, I believe climate change represents a profound opportunity for global businesses to do really well while doing good.

“Lead, follow, or the get the hell out of the way” – Lt Gen George S. Patton

I started my career (back before electricity) as a weather forecaster in the U.S. Air Force and Army — it’s where I learned my chops as both a meteorologist and operations analyst.

In the military weather information is used by warfighters to create strategies and execute tactics. It’s a force multiplier that, when used correctly (using analytics and integrated into the planning process) creates tactical surprise on the battlefield.

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And of course in the literal fog of war to proactively leverage this kind of intelligence requires the ability to operate in conditions that are profoundly risky with outcomes that are profoundly uncertain.

In many ways, everything I learned about creating resilience and operational sustainability I learned as the Chief, Weather Operations of the 101st Airborne Division — it was quite literally forged on the battlefield.

Since joining the private sector twenty years ago I’ve been focused on helping global businesses — primarily in the consumer and financial services sector — leverage weather (and by default, climate) “intelligence” in much the same way.

It’s been a long slog in a space that has to date been relatively nascent, but the trend lines are changing — fast!

If you can make it here …

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The acquisition of The Weather Company by IBM in 2015, was, I believe, a transformative moment in the applied enterprise use of weather and climate information.

It was validation of the “massively huge” opportunity and it has helped to catalyze investment and innovation in the development of sustainable technologies and services.

Climate City Expo

Of course, as the applied use of weather and climate information becomes mainstreamed, amazing new organizations like the Collider in Asheville, North Carolina are being launched as platforms to propel the growth.

I’m looking forward to speaking more on this topic at the Collider’s (very cool!) Climate City Expo business event in Asheville on April 2d and 3rd.

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Here’s a snap shot of some of what will be discussed:

  • “For an issue as pervasive and wicked as climate change, scalable technology holds unique promise as a way to rapidly disseminate intelligence and tools needed to inform and guide action on the ground. How is climate tech changing the landscape of climate adaptation and resilience? What new opportunities are arising due to emerging technologies, and where do we still need new innovation and investment?”

If you’re coming to the event, I look forward to seeing you!

If you aren’t able to come, watch this space. I plan to follow-up with a blog post and, possibly, a video of my keynote.