Impact of Weather Analytics on Retailers

By Nicholas P. Brown

(Reuters) – Big-name retailers such as Walmart (NYSE:WMT) are increasingly using analytics to mitigate the unpredictability of shopping performance due to weather.

Weather Data Utilization

Weather data, once limited to inventory planning, now aids in localizing advertising and timing discounts on seasonal items like sweaters. This year, Walmart used weather analysis through artificial-intelligence software to reduce sunscreen prices earlier than usual in certain U.S. regions, influenced by forecasts of a wetter-than-usual autumn, according to Kirby Doyle, a replenishment adviser for Beiersdorf (ETR:BEIG).

> “In the beginning, (weather data) was just a forecast model for high-level planning. 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.” – Kirby Doyle

Growth of Weather Data Services

A niche group of weather consultants, including Meteonomiqs and Planalytics, is utilizing cloud computing to process vast amounts of data. The demand for weather data is on the rise amidst increasing weather volatility due to climate change, with the National Retail Federation urging retailers to focus on weather analysis.

New tools for pricing based on weather data are expected to emerge as Planalytics partners with BearingPoint to create software for retailers' analytical models.

> “Weather is uncontrollable, but analytics allows you to control pricing.” – Ryan Orabone, BearingPoint

Seasonal Performance Challenges

The current warm October in the U.S. raises concerns for retailers ahead of the holiday season. According to Tractor Supply (NASDAQ:TSCO) CEO Hal Lawton, cold weather is vital for business performance in Q4.

Weather analytics will help companies like Tractor Supply determine discount strategies for winter products. If forecasts indicate temperatures will drop, discounts may need to be evaluated to avoid later missed opportunities.

Despite the benefits, not all retailers accurately interpret data. For example, Lowe's (NYSE:LOW) cited cold, wet weather for weak sales, but data from Weather Trends reveals that May was warm, not cold.

Increasing Frequency of Natural Disasters

Natural disasters are causing significant damages more frequently, with the U.S. National Oceanic and Atmospheric Administration reporting about one significant disaster every three weeks, compared to once every three months in the 1980s. Planalytics plans to double its models available to clients in 2024, highlighting the growing importance of weather analysis in retail.

According to Stefan Bornemann of Meteonomiqs, retailers observe weather's impact on foot traffic and sales, which may increase alongside severe weather patterns. Research from Bill Kirk shows how sales change with temperature variations, emphasizing the need for retailers to adapt dynamically.

“Wall Street hates the excuse of poor weather,” Kirk noted, suggesting that retailers should no longer use weather as a rationale for disappointing earnings.