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COME RAIN, COME SHINE

Retailers use weather forecasting to stay ahead of Mother Nature’s sales-dampening surprises

By Curt Hazlett

As an Air Force meteorologist, Paul Walsh helped plan combat operations during Operation Desert Storm. These days he applies his forecasting skills to another kind of struggle: the one to avoid the casualties unseasonable weather can inflict on retailers.

“You know the analogy of retailing and war being similar?” he asks. “I know it’s true, because I’ve been in both places.”

Walsh is senior vice president of Wayne, Pa.-based Planalytics, which is among the best known of a small but growing number of companies that use weather forecasts to assess buying behavior. The most basic of these provide long-range forecasts that help companies juggle merchandise, while Planalytics and the other more specialized ones combine forecasting with analysis of a retailer’s sales history to estimate the dollars-and-cents impact of a rainy October in Los Angeles or an unusually warm April in the Northeast.

The impact of weather on retail sales is undeniable. For the past 12 years, the correlation between U.S. same-store sales and national temperatures was 81.9 percent, according to Plymouth Meeting, Pa.-based forecast firm SDI/Weather Trends. In another intriguing correlation, the past six U.S. recessions (1971, 1974, 1980, 1982, 1990 and 2001) occurred during very unfavorable years weatherwise.

Walsh calls his forecasts “business intelligence that’s actionable” and says more companies are beginning to see them as an essential part of their planning process. “Retailers need to understand how external events are driving customers’ needs and wants,” said Walsh, who retired from the Air Force in 1997. “Consumers are creatures of the environment. The way we behave and shop is directly influenced by what the weather’s like, and that’s particularly true in the fall and the spring, when weather is the most variable and retailers are introducing their new lines.”

In fact, when ICSC Research and SDI/Weather Trends asked people to specify which kinds of weather they were least likely to shop in, 45 percent said snow, and 37 percent chose rain, though excessive cold and scorching heat were big factors too.

The idea that unusual weather can be anticipated and planned for is relatively new among retailers — and it is likely to gain even more credence because of Hurricane Katrina. Post-storm reports highlighted the fact that forecasters had long expected an unusually active hurricane season and predicted Katrina’s catastrophic results for several days before landfall. Companies that received and heeded that advice were better prepared to deal with the aftermath, of course.

Given that a third of the U.S. gross domestic product is directly influenced by the weather, the importance of forecasting and analysis seems clear. “The correlation between weather and business conditions is pretty well known already, and people really do have a high level of interest,” said Dale Mohler, senior meteorologist and director of international forecasting at AccuWeather, based in State College, Pa.

AccuWeather, founded in 1962, was one of the first meteorological firms to provide private forecasts to businesses. It has become best known over the years for its radio reports, but Mohler says a growing number of its business clients use its long-range forecasts for strategic planning.

For one large retailer of women’s clothing, AccuWeather issues forecasts of conditions four months ahead, including the expected deviation from normal temperature and precipitation. “We also give them a second set of maps that compares what we expect this year with what happened last year,” said Mohler. “They know how much they sold last year in a given area, so that’s helpful when it comes to their stock.”

Most national retailers keep an eye on weather data, to be sure, but the sector that is most sensitive to it is the specialty apparel group, says William Kirk, vice president of SDI/Weather Trends. Rolling out fall merchandise in the middle of a heat wave can be disastrous, he says.

Apparel retailers catering to the 18-to-24 age group are less reliant on weather forecasting, because their consumer base is more likely to purchase clothes in advance of the season, Kirk says. By contrast, shoppers in the 55-to-64 age bracket tend to delay purchasing summer apparel until the weather is hot enough.

A prime example of this trend occurred in May, the coldest in 22 years for the U.S. as a whole. That month teen-oriented Abercrombie & Fitch reported a same-store sales gain of 29 percent, while boomer-targeted Charming Shoppes experienced a 2 percent drop in sales. (The industry average was a 2 percent gain for the month.)

The forecasters are discreet about their clientele. Mohler, for instance, would not identify the retailer in his example “for proprietary reasons.” Nor would Walsh directly reveal the name of a “large home-center retailer” for which his company provides analysis — although Planalytics’ Web site does identify The Home Depot as one of its clients, along with Bass Pro Shops, Bloomingdale’s, Gap Inc. and J.C. Penney Corp.

For the home-center chain, the issue was air conditioners — specifically, what to do with them when warm weather failed to materialize in the spring. “Based on our forecast, we anticipated that May would be a difficult month from a weather-driven-demand perspective, but we expected June to turn around,” Walsh said. “So using that information, the retailer decided to hold off on taking markdowns as their inventory piled up in May. When the weather turned in June and July, they saved an awful lot of money in terms of margin that they would have given away.”

SDI/Weather Trends helped another home improvement retailer save thousands of dollars by warning of an impending drought in the Midwest and Texas last year. “The retailer dumped its lawn categories by May by marking it down and promoting it,” said Kirk. “By the time the drought hit, the retailer had already sold everything.”

Planalytics’ forecasts go as far out as a year. The information is updated nightly and delivered to clients using a Web application. There are also weekly reports and monthly conference calls, all of which is geared toward answering a basic question: How will the expected weather drive sales of different goods at different locations and times?

“We learned a long time ago that simply looking at weather information isn’t enough,” said Walsh. “A rainy day means something different to a consumer in Seattle than it does to one in Los Angeles, and an inch of snow in Atlanta and an inch of snow in Buffalo cause two completely different reactions. The way you get to that difference is by cracking open the point-of-sale databases that large retailers have and by measuring historically how changes in the weather impact purchases.”

That analysis can lead to savings. When Planalytics told Canadian retailer Mark’s Work Wearhouse that a colder-than-normal spring would be followed by a warmer-than-normal summer, the company decided not to mark down its shorts when it normally would have. In addition, the forecast called for warmer temperatures in western Canada than in the east, so the retailer redistributed 8,000 pairs of shorts in western stores. In all, the company says the moves helped it clear an additional $250,000 on that merchandise.

The analysis can even extend to the level of store staffing required in different kinds of weather. “If you’ve done a traffic analysis and you understand what a rainy Saturday means in the Seattle market versus a rainy Saturday in L.A., you can use it to tweak staffing levels,” said Walsh.

The benefits also extend to advertising and promotional strategies, says Kirk. “If you know there’s going to be a cold snap, you can create a double whammy by promoting sweaters and other cold weather merchandise in radio and TV ads,” he said. In fact, 62 percent of the households surveyed by ICSC and SDI/Weather Trends in March said they are more likely to notice in-store displays and promotional signage if the weather warrants immediate use of the product.

Tractor Supply Co., a farm and ranch chain with 550 stores, has been using Planalytics forecasts for five years to help plan its advertising and merchandising. Marketing Director Jonathan Swiskow says it has been especially helpful in hedging against unexpected bad weather.

Still, “weather forecasting is not totally reliable,” Swiskow said. “It’s a factor in our planning, but they are not infallible, and they tell you that. Occasionally, the forecast misses the mark, but we’ve been lucky, because that hasn’t happened during one of our critical time periods.” How accurate are the forecasts? “Seventy-five percent is probably a pretty good number,” he said.

Of course, retailers can try to predict how cold this winter will be by studying forecasts supplied by the National Weather Service. But AccuWeather’s Mohler says the feds are not always helpful. “The problem with the weather service is they refuse to take a stand a lot of times,” he said. “You’ll see maps that are labeled ‘NC,’ or ‘no confidence.’ I’ve never issued a map like that. We’ll take a stab.”

Said Walsh: “Weather by itself is not scalable. Without having analytics behind it, the information can be misleading.”

So what can retailers expect this winter? Mohler anticipates that the Northeast will be colder than normal, the Midwest about normal and the Plains warmer than usual. Kirk says it will be one of the coldest Decembers in recent history and advises retailers to be aggressive with promotions and price incentives to persuade customers to venture out into the cold. That’s more than Planalytics’ Walsh is willing to divulge. “I really can’t comment on that,” Walsh said. “It’s all proprietary.”

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