Weather has predictable and measurable short-term impacts on retail sales. Increasing weather volatility, accelerated by changes to the climate, also has predictable and measurable long-term impacts on retail business operations.
A white paper recently released by NRF and Planalytics, “Climate-Proofing Retail,” explores in-depth how retailers are integrating weather predictions into their retail sales forecasts and marketing plans, how they are using them to determine which products and quantities to stock, and how to price those products to drive sales, lower costs and reduce waste.
The white paper also highlights how rising global temperatures are increasing storm frequency and intensity, droughts, severe floods, forest fires and sea level rise. These impacts are creating new business risks that retailers must manage, including risks at ports, factories, farms, distribution and fulfillment centers, roadways and other physical infrastructure throughout retailers’ global supply chains. These operational impacts are referenced in the white paper and were addressed in greater detail in a recent NRF members-only webinar with the Department of Homeland Security.
The weather has always affected retail sales and now retailers are using sophisticated computer models to better understand how. Clearly, retailers sell more umbrellas when it is raining and they sell more swimwear as summer approaches, but the weather’s predictable impacts on sales are far more sophisticated than such obvious examples.
Extrapolating from data by the American Meteorological Society, the weather alone influences about $1 trillion of global retail sales annually.
Extrapolating from data by the American Meteorological Society, which estimates that an average of 3.4% of retail sales are directly affected by the weather, the weather influences about $1 trillion of global retail sales annually.
Weather affects the kinds of fruits and vegetables consumers buy, the types of beverages they drink, the do-it-yourself projects they tackle, the sports they play, where they shop and the amounts of money they spend. According to Planalytics research, 90% of weather-based sales volatility results from day-to-day changes in temperature and precipitation.
The NRF and Planalytics white paper highlights how weather data is being used to more accurately compare quarterly- or same-store sales based on variances in weather conditions, evaluate the effectiveness of marketing campaigns and calculate avoided waste emissions.
In presentations at NRF 2024: Retail’s Big Show, Chipotle, H-E-B, Dick’s Sporting Goods and other retailers shared how they use weather impact analytics to improve sales projections and product demand forecasts. Shifting different product assortment mixes to different stores based on small, predicted differences in temperature or precipitation can ensure that retailers are maximizing sales opportunities.
In the grocery and food retail markets, for example, these insights can help reduce food waste because demand for specific fruits and vegetables shifts reliably based on weather conditions. This information allows retailers to increase or decrease replenishment orders to ensure supply meets demand. It also allows retailers to lower prices as needed to ensure food is sold to consumers rather than spoiling. One retailer, for example, reduced perishable food losses by 18%.
In addition to considering the weather’s impact on retail sales, retailers are also examining how increasingly volatile weather patterns are creating new risks to business operations, including risks throughout retail supply chains. Walmart, for example, is looking beyond the store to the farm to understand how weather affects its ability to deliver fresh products at affordable prices. It is piloting technology to measure how climate change is affecting agricultural productivity and quality.
The NRF-Planalytics white paper highlights select operational risks. The risks were explored in even greater detail in the recent NRF members-only webinar with a DHS Federal Emergency Response Official Chief Meteorologist tasked with analyzing the financial impacts of extreme weather hazards.
DHS highlighted how severe weather risks can affect retail employee safety, business operations and supply chains, suggesting how the risks might be considered a potential material impact for retail industry investors. DHS also detailed the impacts of heat risks to agricultural productivity; electrical grid reliability; transportation costs; building, parking lot and roadway maintenance costs; heating and cooling costs; insurance costs; and risks to human health.
Retailers are reducing their climate emissions and making it easier for consumers to reduce their own emissions to help address climate concerns. They are also increasingly relying on sophisticated weather models to ensure that consumers will have the products they need, when they need them, despite adverse weather events.
Of particular interest among participating retailers were maps highlighting address-specific risks from wind, floods, fire and heat. DHS encouraged retailers to consider these factors when locating stores and distribution centers, including examining the risks of flood or fire damage blocking transportation routes between ports, distribution centers and stores.
Recognizing the need to better support its associates and the communities they serve when natural disasters inevitably strike, Walmart is partnering with some of its suppliers and local nonprofit organizations to launch mobile disaster response units that can be deployed where needed. The units can provide critical needs like charging, wi-fi access, meals, laundry and showers. They can be pre-positioned based on adverse weather predictions.
Recent storms in the United States have cause flooding that damaged dams and bridges that interrupt the flow of retail goods. More information on this and other resources is available through NRF’s Center for Retail Sustainability.