Just when merchandising and inventory management seemed complicated enough, thanks to shifting tariffs and rising costs, along comes the strongest El Niño weather disruption on record.
El Niño is the warm phase of the El Niño-Southern Oscillation, a climate pattern where sea surface temperatures of the Pacific Ocean rise near the equator, setting in motion weather anomalies across the globe. Its impact will be strongest in North America and during the fall and winter months.
As a result, this year’s event, already dubbed Super El Niño in some quarters, is destined to upset seasonal merchandising plans — unless retailers prepare for it, according to Matthew Porcelli, meteorologist and senior solutions engineer at The Weather Company.
“It doesn't mean collectively the country is going to be warmer or going to be wetter. El Niño has different effects depending on where you are around the country,” he said by video conference. “This is going to be a year that we've never experienced before, and anytime you're in business, the goal is to reduce the amount of uncertainty to reduce the risk in your sales plans, and so we're absolutely seeing that more than ever this year.”
Running hot
Analysts in recent months have warned that El Niño could hurt brands that sell apparel for low temperatures or gear for winter sports.
Discussing Kontoor’s recently acquired Hellly Hansen ski brand, for example, BNP Paribas Equity Research senior analyst Laurent Vasilescu in August called for more details from the company regarding the brand’s sales prospects this year.
“This is particularly important as we think about a potentially very warm winter due to Super El Niño,” he said
In an Aug. 24 research note, Wells Fargo analysts led by Ike Boruchow similarly called out several names, including Burlington, Deckers, Canada Goose and VF Corp.’s The North Face and Timberland as especially vulnerable to the Super El Niño.
Burlington because traditionally they have sold more coats and were hit hard by an El Niño a decade ago. Deckers because it may have to discount its Ugg footwear if December is warm. Canada Goose because its specialty is warm clothing and its leadership doesn’t seem to be planning for a warmer winter. And VF Corp.’s brands because “both carry significant risk from warmer weather that was observable in both 2015 and 2023 El Niño periods on both sales/margin.”
“Historically, warm weather anomalies in critical winter months have had a clear impact on consumer spending related to softgoods,” Boruchow said. “Consumers don't buy coats when it is warm outside.”
Running cold
El Niño is roiling not only demand, but also supply. Understanding this season’s weather patterns, and the effects on both supply and demand, will be key to protecting sales and margins.
With inventory “locked-in well in advance” for the winter, “sales misses, inventory buildups and promotions to make way for Spring” become inevitable because it’s so difficult to predict the weather, according to Wells Fargo.
But El Niño’s effects, while different from the usual patterns, are broadly predictable, according to Porcelli.
“Look at every quarterly report from the publicly facing retailers out there, and you will see them very often using ‘weather’ as an excuse for their sales," he said.
Brands can prepare, though, knowing that hiking and camping season will last longer this year. And while the end-of-year holidays will be unseasonably warm, a cold snap is coming early next year.
The question for retailers this year, then, may center on how agile they can be.
“This could be potentially one of the top 10 warmest winters starting in the month of December, so some of the decision-making that can happen with retailers is they shift their inventory too early and move it to discount,” Porcelli said. “In this case, it would be much more worthwhile to keep a lot of that inventory around. Retailers can actually retain an edge by storing that inventory and waiting until that demand arises.”
The consumer
There may be some good news for consumers in certain areas of the country, at least in the short term.
In many places, energy costs are pressuring household finances, according to recent research from S&P Global. Utility rates in the U.S. have climbed nearly 40% in the last six years, due to data centers, climate change and other factors. Warmer temperatures in the autumn and winter months could bring some relief, according to a September research note from Bank of America Institute analysts Liz Everett Krisberg and David Michael Tinsley. At least in some areas.
“Look at every quarterly report from the publicly facing retailers out there, and you will see them very often using ‘weather’ as an excuse for their sales."
Matthew Porcelli
Meteorologist & Senior Solutions Engineer, The Weather Company
“However, heavier rainfall and storms – particularly in the South – could leave some households facing repair costs, while longer-term pressures from climate change and rising electricity demand may continue to push utility bills higher,” Krisberg and Tinsley said.
If storms cause power outages, people look for backup generators. Stores need to stock what people are shopping for in those moments, to capture not just those sales but also the inevitable add-ons, Porcelli said.
Even more than that, though, is that consumers may also be in a different mood than they usually are at this time of year, he said. Instead of getting cozy in front of a fire, they may be getting out and about. Over a quarter of those surveyed by The Weather Company said that good weather leads them to spend more, and the warm temperatures caused by El Niño will seem like good weather to many people.
“Ninety percent of all decisions are made in the subconscious, and weather is one of the largest drivers of our behavior around the subconscious," Porcelli said.
