The celebration is not only for festivals and seasons, it is also for Sales. As much as shelf life, product positioning, branding, and location, influence sales so do weather influence it. National Retail Federation has reported that jewelry sales in January are three times more sensitive than any time during the year. Favourable weather in the first month drives more traffic to jewelry stores and spikes in the next month around Valentine’s day celebration.
With such sporadic influence on sales; drawing a pattern, and managing inventory to optimize trade promotions are some of the immediate challenges a retail manager has to tackle. Weather-driven demand is a crucial metric that indicates the drag or lifts in potential sales. The weather conditions and seasons impact retail sales and CPG industry in more than a single way.
In this article, we are going to focus on how weather impacts retail sales, and how can one tackle the unpredictability coined with it, using Big Data Analytics.
How Weather Impacts Retail Sales?
Unlike a mom-and-pop store, retail behemoths run chains of stores across the globe. This requires stores to manage sales, trade promotion, and inventory while considering the local environment. Weather and climatic conditions are one such factor that has to be catered to.
Weather influences the consumer psychology, habits, product preference, and behavior.
Sunbathing with new Products
There are some activities you can only do in summers. Some products such as air-conditioners, sunscreen lotions, anti-tan kits, beach accessories, and so on are bought only in this season. But, there are a few activities that consumers look forward to from the retailers. Introducing a new line of products is one such trade promotion that hits the stores. The new stock is then packaged into sale deals and discounts as the sun sets. For tropical countries, the sun keeps this season long when compared to the northern countries.
On the other hand, if summers stay longer to make winters warm, then woolen apparel and accessories would lose its demand in winter. This compels the category managers to try trade promotions for the unattended products. However, if the managers are informed about the changes in weather ahead of time, it adds predictability in sales with the application of relevant trade promotions. After all, small changes to retail sales would increase revenues by a large percentage.
Staying indoors, entertainment within shopping malls, and waterproofing are some obvious behavioral patterns of consumers in the monsoon. This increases sales for takeaways, purchase of food, indoor gaming, and umbrellas.
While these are common, the interesting part is that online sales see an increase during this season. People are more likely to use their promotion codes in this season, staying indoors! Data pertaining to such behavior helped online retailers in designing location specific promotions that targeted driving apparel relevant to the season.
Reserved Shopping Habits in Winter
It is not always true that winter slows sales, but it happens so most of the times. We will discuss both scenarios here.
In 2014, USA faced a long winter storm that literally left deep snow and ice on the roads. This brought transportation to almost a standstill. A research by Nielsen in this season revealed that there was a 21 percent increase in flashlight sales and a contradicting dip in sales of warm soup. For, the weather froze the soup in transit, literally destroying the sales.
The National Retail Federation confirmed in one its report that such contingencies can be forecasted and corrected beforehand, using analytics.
Instances that are influenced by weather are not specific to retailers who manage season specific products. National Retail Federation has clarified it in one of its report that all retailers have to pay attention to weather changes. Online retailers, advertisers, category managers, revenue management officers — all benefit from weather analytics while planning trade promotions, and managing inventory.
How Can Big Data Analytics Help Retailers?
Big Data Analytics that can track weather driven trends and temperature changes can help retailers in staying prepared and designing better trade promotions. This in turn helps in achieving a better return on investment (ROI).
Some areas where Big Data Analytics (morphed as weather analytics) can help Retailers are:
Supply and Demand Planning
Weather Analytics that comes from a different tool or system. The data or functionality, when merged with a trade promotion optimization tool can alert the manager to change levels in inventory. Stocking and early purchase would be more meaningful. Combining historical data with past and predicted weather patterns we can project the levels of demand and correct levels of supply. This adds more efficiency and accuracy to the planning process and eliminates gut-based planning. It further helps in determining focus on more relevant trade promotions rather than bringing those into the market that may not help.
Marketing and Personalization Effectiveness
The famous experiment by Coca Cola involved the use of data about temperature changes to change the price of soda in the vending machine. With hotter temperatures, the vending machine would increase the price of soda. Similarly, McDonald’s used temperature data to promote coffee in colder places.
Hyper local weather data can help marketers in creating in-store promotions, messaging communication, e-commerce promotions, and anything that can be offered in real-time.
Predicting weather’s adverse effect on consumer demand
Unpredictable weather affects store traffic. This helps in mellowing down merchandise, and promotions within that location. For instance, fertilizers, farm related products are some that would see an adverse effect. Education related products and luxuries would also experience a dip. This can’t be largely pre planned but retail planners can fix promotions based on this information.
Ensuring inventories sufficient to meet weather-driven demand
Inventory management is heavily dependant on Logistics. Transportation and infrastructure do not function at their best during climate anomalies. On the other hand, when retailers can sell more with weather-driven demand, their inventory needs have enough stock of those products. With better stock, trade promotions can be designed to help retailers make most out of their strength rather than scrambling with inefficiencies. Good stock would not lead to the creation of desperate promotions that will hurt the profitability of a retailer. This will help you have control over rebates and stock volumes.
Weather data when integrated into trade promotion optimization solutions can intuitively provide 360-degree insights for decision makers. They would be equipped to take on-time and more accurate decisions. These insights would be location-specific and season-exclusive.
Trade Promotion Optimization with weather analytics would enable:
- Creation of measured targets using historical data to mitigate risks out of weather anomalies.
- Retailers to share information with suppliers using in-season management and reporting. This further helps in understanding the performance and collaborating on future actions such as replenishment, promotions and end-of-season inventory management.
- Creation of trade promotions as a part of pre-season planning. These statistically driven
projections will enable their business to reduce forecast error rates.
If you would like to explore more about weather-driven data analytics and case studies, feel free to get in touch with one of our Analytics experts and we’d love to show you a free demo of our AI driven retail weather analytics solution – Compass.