The Impact of Weather on Retail Sector in the UK
The Impact of Weather on Retail Sector in the UK
“Weather has had a greater effect [on sales] than economic numbers, we’ve known that forever” – Andy Street, John Lewis Managing Director, 2014
There has been much written about the disruptive effects of extreme weather events on the retail sector. Certainly severe storms, floods, and blizzards – as well as prolonged periods of unseasonably hot and dry weather can have a seismic impact on trade.
However, this is only half of the story. Commonplace, daily variations in the weather are equally potent drivers of consumer demand, availability of supply, and ultimately retail profits.
As such, retailers can benefit greatly from weather based advertising. By syncing product ads to match appropriate weather conditions, retailers can increase conversions and sales of their weather sensitive products, whilst also decreasing ad spend during periods of less favorable weather.
In the USA for example, 1/3 of all business activity has some form of weather sensitivity, with weather accounting for a swing factor of 3.4% of the total GDP. That's several hundred billion dollars.
In the UK – a country that is less prone to extreme weather occurrences but one which also has much less predictable seasonal weather patterns – the retail industry can get hit particularly hard.
A seasonal temperature just 1°C higher or lower than average typically causes a 1% fluctuation in sales. With the UK retail sector being valued at roughly £300bn, this would equate to a deviation of £3bn.
A case in point would be the warm Autumn of 2014, where temperatures were 1.5% above the historical average in the UK. For the clothing and footwear stockists (12.5% of the total retail sector), this was an unmitigated disaster.
Demand for winter wear was tepid until the arrival of the cold snap at the end of the year – meaning retailers were forced to postpone winter promotions and slash prices on huge swathes of unsold stock in the run up to the Christmas period. The estimated loss in business was around £700m for the months of September and October alone. Here are a few case studies from that period:
- Superdry announced full-year profits of £60-65m compared to the £69-73m predicated by analysts.
- Marks & Spencer clothing sales fell 5.3% due to the warm Autumn weather.
- John Lewis fashion sales plummeted by 13.1% and 6.9% over two weeks in mid-September 2014.
- New Look sales in UK stores contracted from an increase of 8% to 0.5% over 3 months in Autumn.
- e-Retailing Q3 clothing sector saw only a modest growth of 0.3% YOY., compared to the 13% average growth for eCommerce in Q3
Seasonal Weather Impact on various retail sectors
Different sectors within the retail industry have specific periods of the year which are pivotal to their annual success. For instance, garden centers experience a boon in spring – just when the weather turns temperate again following a frosty winter and people begin to contemplate gardening once more.
For the clothes and apparel sector, spring and autumn are the two key seasons heralding the arrival of new collections for the upcoming summer or winter.
For the pharmaceutical industry, summer and winter are the biggest grossing seasons, with cold and flu remedies flying off the shelves in the winter, and antihistamines, sunscreen, and hair removal products selling well during the summer.
In these cases, it is not just a matter of whether the weather is hot or cold, sunny or cloudy, wet or dry – the critical issue is if the weather is seasonal, with unseasonal spells liable to wreak havoc on the retail trade.
Because retailers report sales quarterly, a bout of unseasonable weather over just two or three consecutive weekends can significantly diminish the quarterly sales figures. For example, following a string of wet weekends over the summer of 2013, B&Q announced a £30m shortfall below first-half projected profits. The unseasonably wet weather inhibited demand for outdoor products such as barbecues and gardening hardware.
Weather variability by Retail Sub-Sector
Recent research into the US retail sector’s susceptibility to weather variability showed that 2.3% of sales are weather-sensitive. When these figures are transposed to the UK retail sector, the figures are significant: The numbers below indicate what portion of each retail subsector is associated with weather risk:
- OTC pharmaceuticals – £70m
- Garden and outdoor furniture – £90m
- Consumer electronics – £100m
- Accessories/ Jewellery/ Luggage – £110m
- Home Improvement - £160m
- Apparel – £850m
- Food - £2650
These stats highlight how certain sectors within the retail industry are more weather sensitive than others – for instance, perishable items like food, which have limited stock durations have far higher weather risk attached to them than, for instance, DIY goods or consumer electronics – where holding large volumes of stock is common practice. This is where savvy marketers would use weather targeted advertising across their paid channels, in order to boost their ad visibility during key weather moments, and automatically reduce ad spend during quieter periods.
How Weather Disrupts Shopping Channels
On the demand side, weather not only shapes consumers’ desire for particular products and services, but equally determines the channels and methods they use to make the purchase. These are such a large topics in themselves that we’ve written separate blog articles dedicated to each.
Typically, during inclement weather conditions, there is a drop in custom at high street shops, and a slight increase in business for shopping centers and malls. The spring of 2012 registered the wettest April on record, after a largely seasonal March. This coincided with a double-figure decline in sales across the UK, with high street stores being hit the hardest. Shopping centers were the only category of retail location that actually saw a rise in footfall during that period.
Conversely, online retailers tend to profit during inclement weather, and particularly extreme weather events. The logic is simple - when there is a storm or a flood outside, consumers are far more inclined to stay indoors and make purchases from their devices; it’s no wonder that the 4 warmest days of April 2012 were also the lowest for online retail searches.
Recent consumer research conducted by Mintel attests to this. It found nearly 60% of consumers change their shopping habits when it is hot or when it rains. When it is raining, a third of consumers shop less. 12.5% shop more – but only in covered shopping areas such as large shopping centers rather than high street shops. 16% said that they shop online rather than at a bricks and mortar store when it is raining.
However, all this being said, seasonality and sector are the two key considerations here. If the weather is consistently wet and cold during a month in spring, barbecues and gardening utensils just won’t sell – regardless if it’s online or offline.
Effect of Weather on Consumer Purchase Decisions
Aside from the channels consumers use to shop, weather can also shape consumer decision-making in other ways – the most of salient of these are purchase timing, direct response, substitution, and willingness to spend.
Purchase Timing – Consumers either postpone or fast-track their purchases depending on the weather. For example, during a mild autumn they will postpone their purchase of winter clothing, or during an unseasonably warm spring, they will fastrack their purchase of gardening equipment.
Direct Response – This is when consumers respond directly to weather events – for instance buying sunscreen and cold drinks when it is hot and sunny or rain jackets when it has been consistently raining.
Substitution – In terms of channel, shoppers substitute high street shops with online stores and shopping centers when the weather is bad (as discussed above). In terms of products, shoppers may substitute barbecued meats for roasting meats, or salad for soup – when the weather turns cold.
Willingness to Spend and Perceived Value of Goods – It has been proven that after exposure to sunlight consumers are more willing to self-reward (i.e. make purchases), and are also willing to pay more for goods and services. It has also been shown that when consumers are in a warm environment, their purchase intent increases, and they judge the value of certain items higher. In addition the same study found that warmth leads consumers to be more easily swayed by marketing messages.
What Can Retailers Do To Weatherproof Themselves?
The critical issue for retailers is to understand how weather both impacts their supply chain and demand for their products.
In terms of the supply chain – weather can have positive or negative repercussions on agriculture, cost of utilities, distribution logistics, and building and construction work. All these factors need to be surveyed and at least partially hedged for.
As for measuring weather-driven demand, Weather Analytics can be used to trace product POS data over normalized, localized and baselined historical weather datasets, to understand the correlation between weather and product sales.
From a marketing standpoint, weather analytics is an equally useful tool for identifying optimum windows of opportunity for marketing specific goods and services (they do not always directly coincide with peaks in demand!)
Once the necessary analysis has been completed, a weather responsive marketing strategy can be implemented.
Accurate weather information can help retailers more effectively manage stock to match projected demand for their products, thereby avoiding bloated inventories or stock-outs. Both hyper-local, short-term forecasts, and broader 31 day long range outlooks are equally valuable for this.
Retailers can also apply weather insights to their marketing strategy. By deploying weather triggered desktop and mobile advertising, weather responsive email campaigns and weather-adaptive website content, retailers can drive sales of their weather sensitive products.
Integrating weather into the marketing model enables retailers to weather-proof their omni-channel strategy, drive customer engagement and boost sales.