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In the Market - November 2008
Nov 17, 2008
Do You Really Dream of a White Christmas?
Paul Walsh, Guest Contributor, G2 Weather Intelligence
Weather and climate has a significant yet often misunderstood influence on consumer behavior and spending. This influence typically translates into unexpected monthly sales volatility in the retail sector.
During the fall, unseasonably cold weather is normally a leading indicator of stronger than expected sales results. Despite colder than normal weather and an easy comparison to record warmth last year, October sales results "fell off a cliff." This is stunning evidence of the reluctance of consumers to spend, even on relatively inelastic purchases of seasonal need items.
The chart below compares Wal-Mart (WMT) October comp store sales with a nationally weighted heating degree day (HDD) index. The HDD index is a weather measurement that correlates to heating demand as well as consumer demand for seasonal merchandise. Higher HDD values represent colder temperatures.
Sales during this transition period generally follow changes in the HDD index and reflect demand for seasonal transition products. For nearly all retailers this relationship broke down this year and even Wal-Mart seems to have underperformed the physical environment.
From a weather/climate perspective, Holiday 2008 represents a "downside only" environment: positive weather conditions will not lead to stronger sales, while negative weather conditions will lead to sharply lower sales. This is a year where the threat of a lost weekend due to an ill-timed snow storm could be a disaster for a struggling retailer.