Baby, It's Cold Outside, But Your Customers Will Return
If cold weather has to affect your retail sales, the first quarter is the best time for that to happen.
Look outside and you're likely to see icicles. Much of the country is in the midst of an arctic air bubble, with beer freezing in fan's cups at Packers games and thousands of flights continuing to be canceled or delayed because of the associated storms.
Obviously, if you own a business, it is a cause for concern. With cold weather comes a lot of hunkering down on the part of consumers. But there is some good news: Data show that weather's impact on consumer habits in the first quarter is the easiest to make up.
Very extreme weather patterns happen all year. There are cold snaps like this one, and brutal summer heat waves, spring flooding and fall hurricanes.
Economically speaking, though, the first quarter is the best time to have sales affected by weather. The Federal Reserve studied the effects of weather on retail sales in 2000, and found that, in general, monthly fluctuations in sales caused by weather were smoothed out on a quarterly basis. Every quarter had some impacts, and some were harder to make up than others.
Looking at the data, the Fed found that first-quarter cold accounted for a drop in sales at several different types of retail categories, notably building supplies and furniture.
In the second quarter, though, there is a noticeable bounceback. "This suggests some tendency to defer shopping when the weather is cold, and then make up for lost time in the subsequent quarter," the Fed notes.
Not all weather affects are bad. A warm second quarter, for instance, raises restaurant spending, without robbing revenue from future quarters.
Data show, though, that in other quarters, it is more difficult to see a bounceback when you lose sales. In very hot conditions, for instance, people simply don't shop and usually don't defer their purchases at all. If a holiday season is affected by bad weather, it is unlikely that will be made up in the first part of the following year.
So are you in the clear? Hardly. Any weather event means you are likely to face inventory decisions. There are changes all across the supply chain, from deferred orders so you aren't stocked with too much inventory to shortages because suppliers can't deliver the goods you need on time. Just be prepared.
And you might have to plan to sell your items for a bit less when customers return. There is some data to suggest that the reason sales lost in the first quarter come back in the second is that retailers discount enough to attract buyers into their stores.
Yes, it is bitterly cold, and, yes, your customers are sitting home by the fire. But don't fret. Chances are good your sales will rise along with the mercury.