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).
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.
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:
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.