Weather the Storm of Worries

Annual weather cycles affect large segments of your target customers the same way, so you plan your merchandising to take account of the weather. In January, you can pretty much count on everybody being cold if they go outside when your store is in Buffalo, New York and quite warm when outside a store in Adelaide, South Australia. Knowing this, you’ll stock more stay-at-home and go-out-protected items at one time of year than at the others.
     But as this 2012 mild winter showed, a retailer can’t always count on the climate. Our weather appears to be getting less predictable. According to the Chicago Tribune, earnings at apparel retailers were down markedly in what turned out to be the third-warmest January in fifty years. When the merchandise moved out the door, it was too often at deep discounts, given in order to clear space for items usually associated more closely with springtime.
     Retailers can protect against losses from catastrophic weather events with traditional insurance policies. If hit by a tornado, hurricane, or massive flooding, you document your losses to the insurance carrier, cover your deductible, and are made whole for the rest.
     Two shortfalls of this approach: First, a surprisingly warm winter doesn’t qualify as a catastrophic weather event, even though there could be notable damage to indicators of the retailer’s business health. Secondly, the coverage usually excludes some indicators, such as profit margin erosion, which worry retailers.
     There’s a type of protection which addresses these shortfalls: Weather derivatives make the payout based not on documentations of bottom line losses, but instead on the nature of the climate which threatened the bottom line, such as heat waves or prolonged snowstorms.
     I’m not recommending weather derivatives to you. I’m a psychologist, not an insurance broker. These instruments operate in a market under much more lenient regulation than do traditional insurance companies. I use weather derivatives as an example of customizing your risk management. In order to succeed, every retail business will take educated guesses. Identify what you’ll monitor and what might produce worries which impede your effective management. Those are what to insure against.
     Then concentrate on prospering. The Pulitzer Prize winning Pioneer Press in St. Paul, Minnesota catalogs some among the many retailers who, in fact, experienced increased customer traffic and profits in January. The unusually mild weather freed consumers to get out of their homes and to the stores.

Click below for more:
Merchandise to Fit Purchasing Cycles
Stock Your Cellar for the Perfect Storm
Check Your Dashboard Indicators