Weather affects retail sales. No one can quibble with that statement. The problem is that we cannot quantify how much weather actually affects consumer demand for retail goods.

 

The U.S. Department of Commerce, in a 1965 study, attempted to isolate the impact of weather conditions on variations from expected norms for retail sales. However, it concluded that “the geographic dispersion [of the U.S.] was too great and no practical application was possible.”

 

In the intervening forty years, theory, data, and empirical studies have come a long way. The bottom line is that most researchers today believe that weather plays an important role in personal consumption trends. Abnormal weather conditions can shift the timing of purchases, or it can result in a total loss of demand. However, due to the geographical diversity of the U.S., weather does not seem to have a measurable impact on overall American consumer demand. 

 

New Analysis Sheds Light on “Weather Effect”

The International Council of Shopping Centers (ICSC) recently attempted to summarize and analyze research that has been conducted over the past several decades relating to the correlation between retail sales and weather.

 

The ICSC found that retail sales are affected by weather in three ways:  1) direct; 2) indirect; and, 3) timing. 

 

• Direct – If a region receives a “seasonal shock” from abnormal weather, it has a direct impact on consumer demand. For example, snow keeps people out of the mall; sales which would have occurred are usually lost. But if it snows early in the pre-Christmas period, it can accelerate holiday shopping.

 

• Indirect – If weather is unseasonably cold, consumers must spend more money to heat their homes, leaving less money to spend on discretionary purchases. 

 

• Timing – Sales may be delayed, but not lost, due to certain abnormal weather conditions. For example, if a region has a cool spring, demand for summer clothing will be delayed until the weather becomes seasonally warm.

 

Are Sales Lost to Weather?

Many U.S. retailers report monthly sales. When sales are abnormally weak, management often cites “weather” as the problem:  it was too hot, too cold, too wet, or too dry. When sales are abnormally strong, management usually cites a different set of factors:  great advertising programs, new merchandising programs, and other programs which are essentially a “pat on the back” of management. 

 

Milton Friedman, the Nobel Prize winning economist, takes a different view: he theorizes that consumption and income are highly correlated. Essentially, if income does not change, any increase or decrease in transitory consumption will be reversed in subsequent periods. In short, retail merchants may want to re-think their self-congratulatory press releases when sales are strong.

 

The problem with Friedman’s theory is that no research has definitively confirmed – or dispelled – his conclusion. 

 

A 1962 study by Fabian Linden concluded that unseasonable weather has a powerful effect on demand, and that retail sales are sometimes permanently lost due to unusual weather. However, a study in 2000 by Martha Starr-McCluer says that weather’s impact on retail sales “tends to wash out at a quarterly frequency.”

 

One of the problems with weather studies is that the impact of abnormal weather cannot be isolated. Instead, weather is inextricably intertwined with other factors. For example, most apparel merchants know that when Easter is early, sales are inherently weaker than when it occurs later in the spring season. The reasoning is that consumers are not ready to buy lightweight clothing until it gets warmer. That’s the effect of weather, but it is also the impact of seasonality. In other words, researchers cannot reliably separate these two factors. 

 

Climate Cycles Affect Retail Demand

Most merchants know that abnormal weather affects short term sales. But long term demand trends can also be affected by weather.

 

There is building scientific evidence that an El Nino (or Southern Oscillation), a multi-year cycle of interaction between the atmosphere and the ocean, which produces a large scale abnormal warming in sea surface temperatures, affects consumer demand. El Nino produces warm winters and unusually wet conditions, especially in the west of the U.S. Empirical researchers have shown that U.S. consumer spending tends to be stronger in the early stages of El Nino when temperatures are warming. This may be partly due to less non-discretionary spending on energy and more spending on other discretionary items. 

 

Some researchers suggest that sunspots affect climate; this, in turn, affects consumer demand. Sunspots were first documented around 1610 by Galileo. The first scientific study on the effect of sunspots was conducted by Heinrich Schwabe, who published a paper in 1844 that concluded there are reasonably predictable cycles of sunspot activity. Research by John Herman and Richard Goldberg in 1978, concluded 1) “the amount of annual rainfall . . . exhibits a dependence on the 11-year sunspot cycle”; 2) “long term variations in surface temperatures show some relationship with sunspot cycles”; and, 3) sunspot activity “interacts with the Earth’s atmosphere to affect weather and climate.” 

 

So What Does This Mean for Retailers?

While factors that affect consumer spending and the business cycle vary, the common thread throughout all of these cycles is weather. No economic theory is complete without a weather component. Researchers are careful to note that weather is not the sole cause of consumption cycles; rather, they suggest, it is a significant contributing factor. 

 

The problem, though, is that there is no conclusive empirical evidence relating to the impact of weather on retail sales that can be quantified in a nice neat mathematical equation. Said another way, we know weather affects consumption, but we can’t predict precisely how much. 

 

What Does This Mean for Jewelers?

For jewelry merchants and suppliers, the impact of weather varies by geographic region, as follows:

 

• America – The U.S. is one of the largest countries in the world, in terms of geographic size. It stretches more than 3,000 miles from east to west. Weather systems are far too diverse to have affect demand on a national basis. However, on a regional basis, weather can affect consumer demand in the U.S.

 

• Seasonal weather variations – For example, jewelers in the southeast were citing warm weather in the fall of 2005 as having a negative impact on jewelry demand, going into the all-important holiday selling season. Cold weather is a catalyst to drive demand for Christmas gifts.

 

• Unusual weather events – One-off events, such as a series of hurricanes along the U.S. Gulf Coast in the fall of 2005 (one of which devastated New Orleans), can have a dramatic affect on consumer demand. Jewelry sales in September were virtually nil along the Gulf Coast. But when the government gave out debit cards loaded with cash for hurricane victims, jewelry sales shot sharply higher. Many jewelers reported that they more than recovered sales that had been lost in September. 

 

• Europe – On a country-by-country basis, weather can affect consumer demand. Jewelers who look at each Euro-Zone country on a market-by-market basis will see variations in consumer demand that can be attributed to weather patterns. 

 

• Asia – The Asian region is too geographically diverse to be affected by weather patterns. Certainly, on a country-by-country basis, weather will have an impact on jewelry demand. However, economic and geopolitical factors are much more important factors affecting consumer spending than is weather. 

 

ICSC Conclusions

While empirical evidence tying weather to consumer demand remains elusive, the International Council of Shopping Centers has drawn five conclusions from the existing body of research:

 

1. Weather can cause shifts in the timing of purchases.
2. Weather can cause purchases that might not otherwise occur, or weather can cause a permanent loss of demand.
3. Weather can be responsible for lost or increased economic production – especially in agriculture, construction, and energy. In turn, as consumer wages vary due to weather-induced events, demand will also fluctuate.
4. Weather is one cause of seasonality, and the seasonal cycle is intertwined with the dynamic of business and consumption cycles.

5. To the extent that longer-run weather patterns persist, those influences could result in a non-neutral longer-run impact on business and consumption cycles.