How Weather Data Can Help Retailers Grow Profits
Almost every weather-related headline in the media or corporate annual reports focuses on the associated negative impacts for organizations. And there’s a lot to report: in 2017 alone, there were 330 catastrophic weather events, 31 of which each resulted in damages of more than 1 billion USD. Even "normal weather" impacts nearly every industry on a daily basis, whether through food and heating needs, rates of crop growth, or the efficiency of energy and transport networks.
For too long though, retailers and CPGs have just lived in hope that the weather will be OK and that they’ll get through the season. That said, weather impacts the propensity of consumers to buy everything from food and drink to clothes, drugs, fuel and tools. Leveraging insights from weather data enables retailers to stock and position products by each individual store location.
Right now, retailers and CPGs are in the middle of the back-to-school season, which triggers an unmistakable change in buying habits, product demand, and an overall increase in spending. In 2017, back-to-school spending reached historic levels of nearly $84 billion, up 10 percent year-over-year. And if 2018 is anything like last year, the second largest spending time period won’t disappoint.
As retailers and CPGs put their plans in place, many of them are integrating weather data into their processes to look for insights as an indicator to the demand for all things seasonal so they can fine-tune their supply chains, put goods in the right store locations and thus reduce costs, minimize overstocking and increase revenues.
As we come out of 2016 having been the fifth warmest holiday season in 122 years and 2017 being the coldest winter in four years, there’s good news in store for retailers/CPGs in this year's fourth quarter. This fall, in comparison to last year, colder temperatures nationally will drive generally positive demand trends for seasonal apparel and footwear. However, the demand trends will be distributed dramatically differently across the U.S.
In the eastern third of the U.S. the good news is that cooler fall temperatures will generate stronger demand for fall and back-to-school apparel, providing a tail wind into November and the holiday season. That said, milder temperatures during the holidays and into January will result in decreased demand and a shorter selling runway in January.
Meanwhile, in the western third of the U.S., the good news is that colder temperatures will generate stronger demand for fall/winter apparel, but milder September and early October temps may mean a delayed start to the fall apparel buying season.
If retailers can get weather insights dialed in correctly into their processes, there’s some big potential rewards. In our "Just add weather" report, which surveyed 1,000 global C-level executives representing 13 industries and 15 countries, when we asked executives to scope the potential value of better weather-related insights, approximately one in five scoped the potential annual revenue growth opportunity to be between 2 percent and 5 percent. This opportunity translates to additional revenue growth of up to USD 50 million per USD 1 billion of annual revenue. An additional 62 percent of executives say the revenue growth potential could be up to USD 20 million per USD 1 billion on annual revenue. If you scale this potential opportunity to the Fortune Global 500, it could amount to annual revenue growth of more than USD 500 billion.
Paul Walsh is the Director of weather strategy for IBM Services.
