ON WEATHER SENSITIVITY IN RETAIL INDUSTRY: CONCLUSIONS

Results of many empirical studies show that weather significantly affects store traffic and retail sales. Further on, results imply that weather sensitivity is not uniform but varies between months, product categories and store types. That is why deductive conclusions about weather sensitivity cannot be made. Assessment of weather sensitivity should rather be carried out for each product category and store type separately.Having understood the nature and magnitude of weather impact on sales of certain product categories and store types, retailers may implement the appropriate strategy of protection against adverse weather conditions. Lowering the product price is effective in order to achieve planned sales when adverse weather occurs early in the season. Price reductions can also be effective when adverse weather occurs late in the season, as to avoid the storage costs until the next year. In case of favorable weather conditions, retailers may consider additional marketing activities to inform or remind consumers where they can buy necessary products.

Many retailers are unaware of weather effects on their sales or are under impression that weather exposure cannot be managed. However, even though weather cannot be managed, one can manage i.e. trade its financial exposure to weather. Weather derivatives, a new form of financial derivatives, offer a flexible risk mitigating solution. Indemnities provided by weather derivatives serve to reduce the volatility i.e. uncertainty of sales revenues. Several examples of weather derivatives usage as coverage of costs of promotional campaigns are recorded in practice as well. It can be argued that ever more pronounced climatic change that causes weather variability and economic crisis that forces companies to strengthen their revenues management will positively contribute to applications of weather risk management tools in retail, foremost of weather derivatives.

Further research on weather effects on consumer spending and retail sales are needed as to provide more comprehensive insights on weather risk in retail. Moreover, academics and experts on weather risk management should continue to educate retail managers about weather risk and tools of weather risk management.