Retailers Adapt to Climate with Advanced Weather Analytics
Retail giants like Walmart (NYSE:WMT) are increasingly leveraging weather analytics to mitigate the unpredictable effects of weather on consumer shopping habits. These strategies extend beyond traditional inventory planning, now affecting local advertising and the timing of discounts on seasonal products, such as sweaters. For instance, Walmart integrated weather analysis into its artificial intelligence software for inventory planning and adjusted sunscreen prices earlier than ever due to forecasts predicting a wetter autumn in certain U.S. regions.
While Walmart has declined to comment, a clear shift toward weather-focused decision-making in the retail sector is evident. Companies like Beiersdorf, known for personal care products, are undergoing a transformation in the utilization of weather data. Kirby Doyle, the replenishment consultant for the skincare category at Beiersdorf, noted that weather data has evolved from a tool for high-level planning to a critical component in pre-season and in-season planning, including promotion planning.
As climate change increases weather variability, the demand for advanced weather analytics is also rising. A niche market consisting of weather consultants such as Meteonomiqs from Germany and U.S.-based firms Planalytics and Weather Trends International is leveraging cloud computing to process large amounts of data. The National Retail Federation, led by a Walmart executive, co-published a report with Planalytics in July, calling for retailers to increase their focus on weather analysis.
Innovations in weather data tools are on the horizon; Planalytics is collaborating with management consultancy BearingPoint to develop software that integrates weather analytics into retailers' pricing models. BearingPoint management consultant Ryan Orabone emphasized the importance of analytics and pricing control at an industry workshop held last month.
Tractor Supply (NASDAQ:TSCO), which offers cold weather products, is among the retailers using weather analytics to inform discount decisions for winter products. CEO Hal Lawton stressed the significance of colder weather for fourth-quarter performance during last month's earnings call. Fred Fox, CEO of Planalytics, which counts Dick's Sporting Goods (NYSE:DKS) and Ross Stores (NASDAQ:ROST) among its clients, pointed out that if November temperatures in the U.S. drop below last year's levels as predicted, early discounts could lead to missed opportunities.
On the other hand, Lowe's (NYSE:LOW) CFO Brandon Sink attributed weaker sales in the previous quarter to the cold and rainy weather in May, a claim disputed by Weather Trends founder Bill Kirk. According to Kirk, May was actually the warmest May in the last six years and the third warmest in the past forty years.
The National Oceanic and Atmospheric Administration reports that natural disasters causing $1 billion or more in damages are becoming more frequent, occurring roughly every three weeks now, compared to every three months in the 1980s. Planalytics has seen a significant increase in demand; the number of models provided to clients in 2024 is expected to double compared to the previous year and increase ninefold since 2019.
Stefan Bornemann, president of Meteonomiqs, stated that retailers typically experience the impact of weather through customer traffic and sales. This effect can intensify with more severe weather conditions. Sales data analyzed by Kirk indicates that even a one-degree change in temperature can significantly fluctuate the sales of specific products like horse blankets and Starbucks (NASDAQ:SBUX) coffee.
Kirk argues that using weather as an excuse for poor earnings should end, as it reflects a lack of control over business operations, which is not well-received by Wall Street. Lowe's and Starbucks did not respond to requests for comments on these matters.