“Weather and climate-sensitive industries, both directly and indirectly, account for about one-third of the nation’s GDP,” said the National Oceanic and Atmospheric Administration (NOAA) in front of the U.S. Congress some 20 years ago. By today’s standards, that’s $9.5 trillion impacted by the ever-volatile weather. Since 1980, there have been 396 weather disasters costing over $1 billion in the U.S. alone, with a total cost of $2.8 trillion and 16,499 deaths as a result.
While hurricanes, tornadoes, floods, blizzards, drought and wildfires make the headlines with these billion-dollar disasters, it’s everyday weather that’s having a major impact on retailers and manufacturers of seasonal products, from Wall Street to Main Street. You’ve probably heard that if the world is one degree warmer over the next few decades, then it’s the point of no return when it comes to Earth’s climate. But most businesses can’t act on that information, as it lacks the specificity needed to make actionable everyday decisions that retailers, seasonal category manufacturers, financial services, agriculture, pharma and Main Street have to make when planning their business for next year.
How much inventory is needed for next year if it’s colder, hotter, wetter or drier, which impacts the seasonal things we buy every day? When should a promotion or advertising campaign run to target when consumers are more likely to need these seasonal products? Weather is a big part of that planning process.
Wall Street demands growth from any business, but all too often, weather is the excuse for lower-than-expected results, creating excess inventory levels, steeper-than-planned markdowns or poorly timed advertising and promotional events. Here’s an excerpt from Home Depot’s Q2 2024 earnings report from CFO Richard McPhail: “Weather pressured sales, too, in the recent quarter. Spring is the biggest sales season for home improvement retailers, including Home Depot. Yet customers delayed outdoor purchases because of colder and wetter weather in many parts of the country.”
Home Depot’s store sales were down 2.8 percent, well below Wall Street’s expectation of 1 percent, and the stock price fell from a high of $395 to $325. With a market cap of $388 billion, do the math on the huge loss in value due in large part to the wet weather. Was the wet weather really to blame for an $839 million decline in quarterly sales? In this case, yes. Through April 2024, the U.S. was the wettest in 26 years, 26 percent wetter than average. This doesn’t sound like a lot, but it clearly hurt Home Depot and many other publicly traded companies, all the way down to small businesses on Main Street.
But today, more and more companies are becoming proactive, not reactive, to the ever-volatile changes in the weather when it comes to planning for next year. Year-ahead weather forecasting for business sounds like an impossible task, but is it really? It is if you use meteorologists’ tools, which are an ever-changing physics-based approach to the science. But you could attack the problem differently, with a statistical math 24-climate cycle approach to predict weekly weather trends for sensible metrics like temperatures and precipitation a year out for every mile on Earth.
How does this technology work to help big and small companies plan a year ahead? It starts by analyzing years of actual Point of Sale (POS) data from big retailers for over 10,000 seasonal items, things you and I buy every day.
Did you know that for every 1F colder in winter, there’s a 2 percent increase in coffee sales? Jeans and cold medicines also move at 2 percent per degree colder in winter, while apparel increases at a rate of 4 percent per degree colder, and your energy bill goes up by about 5 percent per degree colder. Auto batteries fail at the rate of 7 percent per degree colder in the heart of winter, and very volatile categories like electric blankets move at a very significant 24 percent per degree colder in December. Now, apply these findings to the weekly year-ahead forecasts that have less error than a 2-week short-range weather forecast, and you have real business intelligence to help companies trump the weather.
Here’s weathertrends360’s forecast of Christmas week 2024, which shows the nation trending 11 degrees colder than last year, the coldest in seven years, with exceptional sales gains for all the things we need to brave the elements.
Let’s see for ourselves just how accurate this is 79 days from now.
