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 U.S. Retail

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 Retail

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 retail:

  • 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.

Record February UK Warmth: Retail Boon or Fool’s Spring?

I’m in London this week for a great week of meetings with clients and colleagues.

Unfortunately I missed the record-breaking February “winter heatwave” and it’s now appropriately and seasonally grey and wet.

See — February could be warmest on record despite cold start

On the bright side it’s significantly milder than what I just left behind on the east coast of the US.

See — Winter Storm Scott Spreading Snow From Plains and Midwest to the Northeast Through Early Monday

U.K. Spring Weather Outlook

According to my colleagues at the The Weather Company forecast office in Birmingham the balance of spring is looking to be relatively mild in the UK but with the potential for wetter then normal conditions.

That means days with fine weather separated by periods of gloom and despair.

A typical British spring.

On the face of it this all sounds beneficial for spring retail. A strong early boost to spring buying, a late Easter and relatively normal weather expected for the balance of the season.

What could go wrong?

A Beast of a Comparison

In late February and early March of 2018 the so-called Beast from the East was pounding Britain with wind, snow and bitter cold and UK retailers suffered their worst quarter in a year — sales dropped 1.2%.

See — ‘Beast from the East’ responsible for biggest drop in UK retail sales in a year

Following the extreme cold and snow an early Easter combined with an extended period of warm weather led to a rebound in UK retail sales that continued through the summer.

See: U.K. Retail Sales Rebound on Warm Weather, Discounts

The net result was a spring retail sales boon with the “beastly” weather happening during a relatively low volume period for spring merchandise and the weather-driven demand rebound happening at exactly the right time.

The stars were aligned.

Fool’s Spring?

On the face of it the late February and March comparison will be a comp lay-up for retail this year — although the impact is always more complex than what’s apparent at face value.

For example — Waitrose and Partners reported that total sales for the week ending Feb 23rd were down (4.3%) compared to the equivalent week due to shoppers stocking up last year for the anticipated ‘Beast from the East’.

Here’s the thing about the weather impact on consumers — on the one hand it’s as obvious as the nose on your face, but in fact the impact is profound, pervasive and mostly underestimated.

As my colleague Claire Willlams, IBM’s U.K. Leader of Retail, AI and Analytics points out:

“Weather has a direct impact not only on the obvious like burgers and salads, but think about it – it impacts how customers feel which impacts their purchasing decisions, their choice of channel, in store manner – it’s everywhere”

On the whole though, the early onset of record warmth no doubt has driven sharp like-for-like sales increases for all manner of seasonal products as well as footfall into high street stores.

Headwinds ahead

But what Mother Nature gives she also takes away — the comparison for the balance of spring and summer will be particularly difficult (beastly?).

This year’s weather-driven demand conditions will likely result in a pull-back in sales when compared to last year as we move deeper into the Spring.

Even with a later Easter holiday and relatively normal British weather, the tail wind that last year’s fine spring and summer weather brought will likely be a head wind this year.

“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

Just Add Weather

As I’ve noted in previous posts, while the impact of the weather is increasing, retailers are also increasingly leveraging the data in creative ways to quite literally turn opportunity into risk.

See: Weather Data is Transforming Consumer Demand Planning

Marks & Spencer is a great example of how this is working. According to Ricky Mompalao, Head of Forecasting for Ambient Foods:

“Marks & Spencer uses weather data to help predict the level of demand we can expect for items across our UK stores. We use this information to plan our stock and, at the same time, minimise waste. To help us get this right, we’re looking at weather forecasts weeks in advance, with a level of confidence that means we can better prepare our stores.”

For more on how the retailers are leveraging weather data see our white paper, recently published by the IBM Institute for Business Value —

You can download it here: Just Add Weather

Executive Summary:

Don’t blame it on the rainWhy do so many executives get a shiver in their bones just thinking about the weather? It’s likely because weather often has a largely negative impact on business. Yet according to our recent research, that’s not true for all organizations. Many companies are turning weather data into a competitive advantage by leveraging insights to reduce costs and increase revenues. Just how are leading organizations successfully benefiting from weather insights to improve their bottom lines? Stop wondering if a hard rain’s going to fall and learn how to put weather to work for your organization.

Weather a Hot Topic at the National Retail Federation Big Show

Had the opportunity to chat with my friend and former colleague (and self-described weather geek), CNBC Senior Economic Analyst Steve Liesman at the National Retail Federation Big Show last week in New York.

He’d just finished interviewing former Chairman of the Federal Reserve Janet Yellen and Kara Swisher, Host of the Recode Decode Podcast.

The topic of the panel?

Impact at scale: Leading in prosperous yet uncertain economic times

While the discussion wasn’t directly related to weather and climate, the spirit of the title at least was relevant to the uncertainty consumer businesses face every day as it relates to the volatility in consumer demand that is created by the weather and, by proxy, the climate.

See: “Climate is just a thousand little weather’s

An alternative title could have been framed as: “Impact at scale: Leading in prosperous yet uncertain climatic times.”

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.

The uncertainty is creating increased risk … but also increased opportunity.

See: Just add weather

As someone who’s been at the bleeding edge of the topic of weather integration into retail systems, I was very encouraged at the NRF show to see weather data integrated across nearly all IBM’s consumer offerings — from commerce and marketing to supply chain and block chain.

Weather data is now also showing up in SAP and JDA integration’s and the topic of managing consumer weather risk is no longer a curiosity — it’s becoming, dare I say it, mainstream.

See: The Effects of Weather on Corporate Earnings are Gathering Forc

Historically retailers have 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 it’s 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.

It’s how the best retailers and consumer packaged goods companies and quick serve restaurants are, indeed, prospering in uncertain times.

To quote Sun Tzu (because, why not?) —

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

If you’d like to follow me or connect I can be found here on Twitter and here on LinkedIn.

In Vino Veritas: On Wine, Weather and Climate

Note: this was first published on weather.com on March 25, 2014. 

“Give me wine to wash me clean of the weather-stains of cares.” ― Ralph Waldo Emerson

We all watch the weather.

Most of the time, we don’t think about what it means beyond the immediate concerns: do I need an umbrella today? A heavier jacket?

It’s automatic, and it quietly shapes our lives.

Winemakers don’t watch the weather. They live it. It’s the single most important ingredient in the quality and quantity of their product.

In fact, sun, wind and rain are the main inputs into an industry that adds an estimated $162 billion to the national economy annually and provides the equivalent of 1.1 million full-time jobs.

The success or failure of a vintage in any given season is linked directly to the vagaries of ridges and troughs, inversions and heat domes.

As with producers of all our agricultural products, winemakers are affected by weather in a way that most of us can only imagine.

Winemaker Meteorologist

I recently spoke with winemaker James Hall about the impact of weather on wine production. James is a co-founder and chief winemaker at Patz and Hall, one of California’s most highly regarded wineries — with a celebrated portfolio of single-vineyard Chardonnay and Pinot Noir wines.

James is also, for all intents and purposes, a meteorologist. Every day, he thinks about the weather in a more exhaustive and personal way than most forecasters.

Weather is that nagging concern that keeps James awake at night and consumes his daily planning decisions. For James, every decision about the wellbeing of his grapes and the profitability of his vineyard relies on weather.

Quantity is Made in the Spring

As with other crops, the planning for grape season starts long before the grapes are harvested.

Using what are known as Heat Summation Units (HSUs) — an index calculated based on daily average temperatures greater then 50 degrees Fahrenheit — winemakers can estimate when grapes will be ready to harvest based on the date of the bud break and the average accumulation of HSUs for the location.

With those two bits of information, they can estimate when they should harvest the crop and put together a strategy to maximize the quality and quantity of the harvest.

The timing of “bud break” is one of the most important issues to take into consideration when strategizing. If bud break happens early, the crop becomes exposed to the risk of frost damage. Early frost, then, could result in reductions in the eventual yield of the vineyard.

Because of these early risks, winemakers note that grape quantity is determined in the spring.

Playing Poker with the Weather

The weather in the last six weeks of a vintage is the most critical time in the grapes’ lifespan. This is when any careful winemaker watches the weather “like a hawk,” according to James.

During those six weeks, rain on mature crops can cause grape rot, and a late frost can damage the grapes on the vine.

It’s during this phase in the growth cycle that vineyards practice what James calls “playing poker with the weather.” They have to make the choice whether to harvest and take their winnings or to wait for the absolute best conditions and get a higher quality grape. Of course, this waiting leaves grapes vulnerable to the weather’s fluctuations.

To account for this unpredictability, James and many of his colleagues use a commercial weather service (Western Weather Group) to monitor weather conditions both at the macro and micro level: using weather satellites for a larger picture and vineyard-specific sensors for a more granular one.

The meteorological inputs they get from the ground and from satellite sensors and radars all help them make the “hold ‘em or fold ‘em” harvest call.

Ultimately, weather in the spring shapes the quantity of a harvest, but the final month determines the quality of the grapes.

Grape Expectations

Dr. Antonio Busalacchi, a professor at the University of Maryland, is a climate scientist with a twist. He’s also a sommelier.

In a recent article published in Science News, Dr. Busalacchi explains in detail the often surprising impact of climate change on the production and quality of wine. He says, “A number of wine regions around the world are in the sweet spot right now. We have been seeing places like Bordeaux, Germany and northern Italy, even California, putting together a string of very good and very consistent vintages as a result of climate.” (Read the full story here.)

In the case of Napa Valley winemakers, where weather is so much a part of daily decision-making, climate change is a huge concern.

As is typical of the optimistic spirit of American farmers in general, James sees a possible silver lining for California grape quality.

As inland temperatures continue to rise, the marine layer along the California coast will continue to moderate, moisten and cool the key grape growing areas in northern California. These are optimal conditions for the varietals that thrive in that area.

Bailed Out

The drought in California is having a significant impact on the state’s economy and on its large agriculture industry.

After two spectacular years for wine production in 2012 and 2013, this year’s vintage was at significant risk due to the lack of available water for irrigation.

It was touch and go coming out of the winter, and wine producers across California were facing what looked to be a very difficult year.

And then came the Pineapple Express.

The weather pattern changes in early February brought much-needed rainfall to northern Calfornia. According to James, the rains “bailed them out big time.” Now wineries in northern California are optimistic for another great vintage.

In vino veritas indeed!