Analysis: In changing climate, retailers turning to weather strategies

Tractor Supply Co

04/11/2024 11:00

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      Retailers use weather data for advertising, inventory and
pricing decisions
    

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      Climate consultants leverage cloud computing to process
vast
amounts of data
    

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      Demand for climate analytics rises amid increased weather
volatility
    

  
    By Nicholas P. Brown
       Nov 4 (Reuters) - Big-name retailers such as Walmart
 WMT.N  are increasingly using analytics to blunt the impact of
one of the most unpredictable performance variables of shopping:
weather.
    Weather data, once used strictly for inventory planning, is
now helping retailers localize advertising and decide when to
discount seasonal items such as sweaters. 
    Walmart, whose inventory planning with
artificial-intelligence software incorporates weather analysis,
reduced sunscreen prices a couple weeks earlier than usual this
year in parts of the U.S. Weather data forecasting a
wetter-than-usual autumn in some U.S. regions was a factor in
its decision, whereas several years ago, it likely would not
have been, said Kirby Doyle, a skin-care category replenishment
adviser to the world's biggest retailer.
    "In the beginning, (weather data) was just a forecast model
for high-level planning," said Doyle, who works for Beiersdorf
 BEIG.DE , which makes personal-care products. "Now we’re
infusing it into pre-season planning and throughout the season
to diagnose the impact of weather, and for things like
scheduling promotions.”
    Walmart declined to comment.
    A niche group of weather consultants — from Germany's
Meteonomiqs to U.S. firms Planalytics and Weather Trends
International — is using breakthroughs such as cloud computing
to process once-unimaginable amounts of data.
    Demand for such data is growing amid heightened weather
volatility due to climate change. The National Retail
Federation, which is chaired by a Walmart executive, issued a
report with Planalytics in July, recommending retailers pay more
attention to weather analysis.
    New weather-data tools, centered on pricing, may soon be
hitting the market. Planalytics and BearingPoint, a management
consultancy, are partnering to build software retailers can
integrate into their analytical models for setting prices. 
    “Weather is something you can’t control,” BearingPoint
managing consultant Ryan Orabone said at an industry workshop
last month to unveil the new initiative. “But you can control
the analytics. And pricing, you absolutely control.”
    It is natural for a warm October, like this year's in the
U.S., to cause retailers to sweat ahead of the holidays. "It
needs to get cold for our business to really perform well in
Q4,” Tractor Supply  TSCO.O  CEO Hal Lawton said last month on a
quarterly call. 
    The company, which uses weather analytics, sells
cold-weather products like heating pellets and outerwear.
    Weather analytics can help companies like Tractor Supply
decide whether to discount winter items, said Planalytics CEO
Fred Fox, whose clients include Dick's Sporting Goods  DKS.N 
and Ross Stores  ROST.O . 
    If November temperatures in the U.S. drop below 2023 levels
- which forecasts suggest is likely - a discount now could mean
a missed opportunity later, Fox said.
    As intuitive as that may seem to a retailer, they do not
always get it right. 
    In August, Lowe's  LOW.N  Chief Financial Officer Brandon
Sink cited cold, wet weather in May as the reason for weaker
sales in the prior quarter.
    But that description is inaccurate, said Bill Kirk, founder
of Weather Trends, whose clients include Target  TGT.N , Gap
 GAP.N , and Tractor Supply. 
    May was indeed wet, Kirk's data shows, but not cold. It was
the hottest May in six years for the U.S., he said, and
third-hottest in four decades. "Welcome to the world of retail
excuses not based on facts," he said.
    Lowe's did not respond to a request for comment.
    
    RISING TEMPS, RISING DEMAND
    About every three weeks in the U.S., a natural disaster
causes $1 billion or more in damages, according to the U.S.
National Oceanic and Atmospheric Administration, up from once
every three months in the 1980s.
    Planalytics, which uses computer models to help retailers
understand how weather affects sales, is on pace to provide
clients with twice as many models in 2024 as it did last year,
said Evan Gold, the company’s executive vice president of
partnerships. Since 2019, that figure has shot up ninefold.
    Retailers typically see weather's impact in foot traffic and
sales, said Stefan Bornemann, head of Meteonomiqs, whose clients
include retailers using the e-commerce platform Shopify
 SHOP.TO . "The impact could get bigger, given more severe
weather patterns,” he said.
    Kirk has analyzed how sales for a given product rise or fall
with each degree of temperature change. Sales of horse blankets
rise 7% per degree colder and Starbucks  SBUX.O  coffee sales
climb 2%, he said.
    Starbucks did not reply to a request for comment.
    Some clients use Kirk's data for so-called dynamic pricing,
the practice of adjusting prices to demand. If a sales season
looks particularly weak, clients may implement small markdowns
early, rather than be forced to impose larger ones later to
clear excess inventory, Kirk said.
    The days of retailers using weather as an excuse for a poor
earnings season should be over, he added.
    “Wall Street hates that excuse,” Kirk said. “What you’re
saying to your investors is, ’We can’t control our business.’”

 (Reporting by Nicholas P. Brown in New York and Helen Reid in
London; Editing by Rod Nickel)
 ((nicholas.p.brown@tr.com; + 1-332-219-1289))