It’s late 2022 and uncertainty is everywhere.
- Inflation and rising interest rates are pressuring households and economies around the world.
- Europe faces a war and an energy crisis.
- Workforce shortages remain a challenge and certain supply chains have still not normalized.
- Some signs point to a resilient consumer and stable demand; others are flashing warning signals that discretionary retail spending is about to fall off a cliff.
Oh, what a wonderful time to be a retailer!
With so many major moving pieces in flux, planning a retail business and projecting financial results is exceedingly difficult. So much is out of any retailer’s hands.
As a retailer, you control what you can control – product assortments, pricing and promotions, the store and website experiences, optimizing internal processes, etc. – and this is where investments, innovations, and energies are typically focused.
At best, you have contingency plans for the less foreseeable stuff that the world or economy throws at the business. As a rule, external factors that are unknown, uncontrollable, and unpredictable are pretty much impossible to proactively manage.
There is one exception to this rule.
Retailers have long recognized the significant influence that changes in the weather have on store traffic and product-specific sales. Most, however, have not moved beyond recognizing the impacts to effectively addressing the opportunities and risks that weather variability presents to the business. This is not surprising really; the weather is notoriously fickle, and it is completely out of anyone’s control.
You can’t control it, but you can control the financial impact of weather on your business.
Retailers that quantify the weather’s impact on sales and incorporate it into core processes are growing sales by minimizing out-of-stocks and improving digital marketing effectiveness, reducing inventory costs, and capturing up to 6% in additional profit annually.
How is this possible?
For starters, the weather’s impact on sales is known.
Weather-driven demand analytics, when developed from multiple years of product-level sales data for specific locations and time periods – and controlled for factors such as trend, seasonality, pricing, and promotions – will reveal weather-to-purchasing relationships.
With these analytics in hand, retailers can precisely calculate how the weather affected demand. When evaluating yesterday’s or last week’s (or month’s or quarter’s, etc.) sales performance, both the actual weather that occurred and the sales impacts it created are a complete known. As a retailer, you can now sensibly compare performance across markets, departments or product categories, and channels with weather-adjusted sales.
What about looking forward in time? Can weather-driven demand analytics be useful in the coming days and weeks and even months down the road? The answer is yes.
Ignoring weather-based sales impacts increases demand forecasting error.
Today’s near-term weather outlooks are quite reliable for retail business needs. For activities like store-level inventory replenishment, meteorological forecasts that are fed into weather-driven demand models do optimize inventories and drive financial benefits (increased sales, improved margins, etc.).
Meteorological forecasts do degrade over an extended time horizon, but this does not mean there is no way to plan for the weather’s business impacts months into the future. Here again, the ability to measure how purchasing has been affected by the weather in the past enables retailers to improve plan accuracy going forward.
Deweatherizing sales actuals and providing retailers with year-over-year plan adjustments keeps businesses from inadvertently “chasing” weather-driven sales impacts. This reduces error (more than 10% for many products and time periods), due to the fact that weather impacts are statistically unlikely to repeat again the following year. The deweatherization process must be granular to be effective, with a bottom-up approach that corrects for weather volatility on a product-by-product and localized (store or zip code) level.
The weather is a never-ending challenge and it is (maybe surprisingly) the one external variable retailers can actually do something about.
Operationalizing weather analytics is not only possible, but it is proven to be profitable. Best of all, the financial gains can be captured almost immediately.
Start with a comprehensive, enterprise-wide weather impact analysis that identifies exactly when, where, and how much a shopper’s “climate” influences their purchases and your company’s performance. In Planalytics’ experience with retailers this process can be completed in under 10 weeks with a clear outline of expected financial benefits (revenue increases from reduced stock-outs, annual EBITDA gains, etc.) once weather-driven demand metrics are integrated into existing forecasting systems. Within 3-6 months, retailers are capturing the gains. Leading retailers are doing this today and returning millions to their bottom lines.
There are a lot of factors pressuring the consumer and retail profitability. As a retailer, you obviously can’t change the weather but you can control how it impacts your business.
Visit www.planalytics.com to learn more about predictive weather-driven demand analytics.