Now the weather can be blamed, too.
This story first appeared in the November 18, 2014 issue of WWD. Subscribe Today.
The coldest temperatures since the winter of 2013 blew through the Northeast and Midwest last weekend as snow fell across the Southern Plains and severe thunderstorms —even tornados — hit the Gulf Coast. In a season when consumers are still skittish about the economy and retailers are already rolling out price promotions like there is no tomorrow, the weather is adding yet another complication to the upcoming holiday season.
“I’m sure it will have an effect on sales,” said Frank Badillo, chief economist at Kantar Retail. “How and where we’ll see the impact [isn’t clear] yet.”
While observers predict higher-income consumers might boost their holiday spending this season, higher food costs are eating into any savings middle- and lower-income shoppers are getting from lower gas prices. As a result, experts conclude that any increases in holiday spending will be smaller than what retailers have put on their Christmas wish lists.
Last weekend’s bad weather is expected to continue into this week. “If this were going right into Black Friday and that big shopping weekend, it would have a negative effect,” Badillo said. “In past years, people have sometimes held off on their spending because they were waiting for Black Friday sales.”
This year, those sales already have begun, leading to not simply Black Friday or Black Friday Week but Black the Whole Month of November. More than a third of 100 retailing chief marketing officers interviewed by BDO USA said they will have conducted “most” of their holiday promotions by Thanksgiving Day. And with so many promotions available to consumers so early — and more stores opening their doors on Thanksgiving Day — some consumers will be close to tapping out their personal holiday budgets, requiring further promotions in the weeks running up to Dec. 25 to get them interested in gifting themselves or others.
Nearly two-thirds of the cmo’s, or 64 percent, expect the overall level of their holiday discounts and promotions to be higher than last year. Just over two-thirds, or 67 percent, expect in-store deals to be their top tactic for getting consumers into the stores early.
But retailers may be killing the proverbial goose with their increasingly premature holidays. “By 2020, the official start to the holiday season may be in October,” said Ted Vaughan, partner in the retail and consumer products practice at BDO USA. “Consumers now expect holiday promotions to come early and end late, and it’s becoming increasingly challenging for retailers to provide attractive deals while preserving margins.”
Consumers’ ever-growing expectations now include free shipping, extended store hours and deep discounting, which often hurt bottom lines, but are necessary in order to survive in today’s hyper-competitive climate, Vaughan added.
“There’s a lot of shifting going on and extenuating circumstances due to the weather,” Badillo said. “It may affect some individual strategic moves and promotions that retailers have been undertaking. We’re going to see the impact shift from this retailer to that retailer and from today to next week. In the end, shoppers will spend as much as they planned, but where they end up spending it and when may shift. There’s also the questions of how much of it benefits the online retailers. If people stay indoors, some of that may shift from stores to online.”
There are many examples of the disruptive impact of the weather on retail sales from last winter. At this time last year, there were some weather conditions and government-related events that contributed to the season’s weak performance at the cash register. “We just got through the government shutdown and had the rollout of health-care reform that generated a lot of concern about how the reform would affect health care spending,” Badillo said. “We had some of these government effects that kind of depressed spending, creating soft comparisons this year.”
Badillo sees consumer sentiment in general as “much more positive this year than last year. We do a monthly survey of shoppers and we ask them, do you plan to spend more, less or the same. More people said they’re planning to spend the same or more than last year. Sentiment is stronger, particularly in upper-income households. The job market is much stronger this year than last year. We’ve had fairly strong job gains. With sentiment better and fewer questions about government-related issues and health-care reform, this should add up to a stronger environment for holiday spending than last year. For retailers, there are more competitive issues than economic issues. Will Amazon or online retailers [take market share]?”
Despite more optimism overall among consumers, worries remain. The higher costs of health-care plans under Obamacare will impact middle- and lower-income consumers, as will food prices. In addition, while unemployment has fallen, wages have remained pretty stagnant even with the improving economy.
Craig Johnson, president of Consumer Growth Partners, noted that even Wal-Mart’s U.S. comp-store sales increase for the third quarter of 0.5 percent was primarily due to inflation in two areas, pharmacy and food, with groceries and consumables accounting for about 57 percent of sales. “They’re not hitting food numbers like Kroger and they’re not hitting pharmacy numbers like Walgreen,” Johnson said, adding that some of the supposed benefits of lower gas prices have been virtually erased by higher prices for food. Price increases in food have outstripped the reductions in gas prices by about $2.5 billion a month, he said. “That’s about a 1 percent headwind when it all nets out.”
Rosemary Radich, a senior research analyst at Accuweather who studies the weather’s impact on consumer behavior, said, “A lot of times, large retailers would blame the weather on their performance and say, ‘We can’t control it.’ Businesses on the cutting edge can now understand that while they can’t control or change the weather, they can change their reaction to it. Maybe they should make a stronger push for Cyber Monday sales” if the weather is going to be bad, Radich said. “More people are catching on to this. In an age of Big Data, getting it all together, retailers are able to analyze it and if they don’t, they’re going to be left behind.”
Thirty-seven days before Christmas, Accuweather’s forecasts for the top 10 U.S. metropolitan areas — New York, Los Angeles, Chicago, Dallas, Houston, Philadelphia, Washington, Miami, Atlanta and Boston — are all calling for lower-than-average temperatures, particularly in Washington, Dallas, Houston and Atlanta.