ON WEATHER SENSITIVITY IN RETAIL INDUSTRY: Magnitude of Weather Effects

Weather Effects

Kirk (2005) and Niemira (2005) suggest three theories that explain the magnitude of weather effects on consumer spending and retail sales. According to the first theory weather has temporary impact and adverse weather merely delays the sales in time but does not impact the overall consumption. First theory can be referred to as the Purchase Timing Theory according to which reduced sales in the current period will be offset by sales increase in future periods. First theory explains well the sale of products use of which is seasonal, so the beginning and the end of season are defined by the appropriate weather conditions. For example, lawn mowers and gardening tools are commonly purchased early in the spring before the start of the gardening season. However, if warm temperatures and rain occur later than usual, the sale of gardening tools will also occur later than usual (Murray et al., 2010). In other words, the sales will be postponed to a later period but will not be permanently lost. Deviation from the usual weather also delay the sales of seasonal garments (Bahng and Kincade, 2012) and durable goods such as cars, furniture, consumer electronics and building materials (Starr-McCluer, 2000).

According to the second theory, adverse weather leads to a permanent loss of sales. The sales occur neither in the current nor in the future periods but completely fail. Second theory can be referred to as the Permanent Impact Theory and explains well the effects of weather on sales of products that are mostly bought impulsively. Research results of Agnew and Thornes (1995) and Ramanathan and Muyldermans (2010) suggest that the refreshing drinks are bought impulsively during the hot weather. Accordingly, Blom (2009) confirmed there is no lagged effect of temperature on the out-of-store sales of soft drinks. More generally, it can be argued that weather has instantaneous and permanent effect on sales of products that are consumed in rather short period of time, i.e. non-durables, such as food and gasoline (Starr-McCluer, 2000).

Third theory suggests that weather has far more significant role in the overall economy than is stated by the previous two theories. According to the third theory, the economic downturns occur in the years with unfavorable weather conditions. Third theory can be referred to as the Weather/Consumption Cycle and applies to the countries with large shares of weather sensitive industries, such as agriculture, in total national output. For example, results of study conducted for Morocco show that absence of rain is associated with diminishing of national output (Dischel, 2002). However, when considering weather effects in retail, one can expect first two theories to prevail.

Kirk (2005) further explains that when considering the magnitude of the weather impact on consumption and sale, one needs to distinguish between a “need” and a “want” product. Need products are necessary products purchase of which cannot be deferred, whereas want products are the ones consumers would like to have. The car battery is an example of a need product and electronic appliances are an example of want products. Kirk (2005) concludes that seasonal need items are the most weather sensitive product categories that show the greatest volatility in sales year after year. Ryski (2011) agrees that the magnitude of weather impact on sales depends on the necessity of having a certain good, but uses the terms “necessities” and “deferrable purchases” instead. According to Ryski (2011) store traffic and sales can be relatively unaffected by weather conditions if retailer offers what customers need. However, it should be kept in mind that purchase of almost any item can be deferred, at least over the very short term. All food products are an example of products purchase of which cannot be deferred, at least not for a long time. But that does not mean that food retailers are unaffected by bad weather. Precisely because purchase cannot be deferred, customers are more inclined to shop in smaller neighborhood stores. On the other hand, garments can be seen as both need and want items with easily deferrable purchase over a short term. Kirk (2005) argues that age and gender of customers affects the perception of clothing as a need or a want product. Older shoppers and males are more likely to wait with the purchase of seasonal garments until the appropriate weather occurs. As opposed to them, younger shoppers and females buy early in the season.