Weather And Shopping

Idexonline writes:

Weather affects retail sales. No one can quibble with this statement. The problem is that we cannot quantify how much weather actually affects consumer demand for retail goods.

The International Council of Shopping Centers (ICSC) recently attempted to summarize and analyze research conducted over the past several decades relating to the correlation between retail sales and weather.

The ICSC found that retail sales are affected by weather in three ways: 1) direct; 2) indirect; and, 3) timing.

Direct – If a region receives a “seasonal shock” from abnormal weather, it has a direct impact on consumer demand. For example, snow keeps people out of the mall; sales that would have occurred are usually lost. But if it snows early in the pre-Christmas period, it can accelerate holiday shopping.

Indirect – If weather is unseasonably cold, consumers must spend more money to heat their homes, leaving less money to spend on discretionary purchases.

Timing – Sales may be delayed, but not lost, due to certain abnormal weather conditions. For example, if a region has a cool spring, demand for summer clothing will be delayed until the weather becomes seasonally warm.

One of the problems with weather studies is that the impact of abnormal weather cannot be isolated. Instead, weather is inextricably intertwined with other factors. For example, most apparel merchants know that when Easter is early, sales are inherently weaker than when it occurs later in the spring season. The reasoning is that consumers are not ready to buy lightweight clothing until it gets warmer.

That’s the effect of weather, but it is also the impact of seasonality. In other words, researchers cannot reliably separate these two factors.

Climate Cycles Affect Retail Demand
Most merchants know that abnormal weather affects short term sales. But long term demand trends can also be affected by weather.

There is building scientific evidence that an El Nino (or Southern Oscillation), a multi-year cycle of interaction between the atmosphere and the ocean, which produces a large scale abnormal warming in sea surface temperatures, affects consumer demand. El Nino produces warm winters and unusually wet conditions, especially in the west of the U.S. Empirical researchers have shown that U.S. consumer spending tends to be stronger in the early stages of El Nino when temperatures are warming. This may be partly due to less non-discretionary spending on energy and more spending on other discretionary items.

What Does This Mean for Retailers?
While factors that affect consumer spending and the business cycle vary, the common thread throughout all of these cycles is weather. No economic theory is complete without a weather component. Researchers are careful to note that weather is not the sole cause of consumption cycles; rather, they suggest, it is a significant contributing factor.

The problem, though, is that there is no conclusive empirical evidence relating to the impact of weather on retail sales that can be quantified in a nice neat mathematical equation. Said another way, we know weather affects consumption, but we can’t predict precisely how much.

For jewelry merchants and suppliers, the impact of weather varies by geographic region. The U.S. is one of the largest countries in the world, in terms of geographic size. It stretches more than 3,000 miles from east to west. Weather systems are far too diverse to have affect demand on a national basis. However, on a regional basis, weather can affect consumer demand in the U.S.

Seasonal weather variations – For example, jewelers in the southeast were citing warm weather in the fall of 2005 as having a negative impact on jewelry demand, going into the all-important holiday selling season. Cold weather is a catalyst to drive demand for Christmas gifts.

Unusual weather events – One-off events, such as a series of hurricanes along the U.S. Gulf Coast in the fall of 2005 (one of which devastated New Orleans), can have a dramatic affect on consumer demand. Jewelry sales in September were virtually nil along the Gulf Coast. But when the government gave out debit cards loaded with cash for hurricane victims, jewelry sales shot sharply higher. Many jewelers reported that they more than recovered sales that had been lost in September.

ICSC Conclusions
While empirical evidence tying weather to consumer demand remains elusive, the International Council of Shopping Centers has drawn five conclusions from the existing body of research:

1. Weather can cause shifts in the timing of purchases.
2. Weather can cause purchases to be made that might not otherwise occur, or weather can cause a permanent loss of demand.
3. Weather can be responsible for lost or increased economic production – especially in agriculture, construction, and energy. In turn, as consumer wages vary due to weather-induced events, demand will also fluctuate.
4. Weather is one cause of seasonality, and the seasonal cycle is intertwined with the dynamic of business and consumption cycles.
5. To the extent that longer-run weather patterns persist, those influences could result in a non-neutral longer-run impact on business and consumption cycles.

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