How Warm Weather Will Hit Cold Weather Retailers

In a recent interview with Buzzfeed, Bill Kirk, CEO of a company called Weather Trends, said that a one degree change in temperature can translate to a 3% to 5% fluctuation in demand for winter clothing. Weather Trends helps big name retailers forecast seasonal supply requirements. With temperatures across North America currently between 10 and 20 degrees above average, and with this set to remain during the second quarter of the year, a host of retailers look poised to take a considerable hit on their cold weather inventory. In light of this, which retailers are set to get hit the hardest, and which are the stocks to avoid this quarter?

The obvious additions to the list are big name retailers such as Kohl’s Corp. (NYSE: KSS) and Macy’s Inc. (NYSE: M). Both companies stock a broad range of cold weather products, from clothing to bedding and even perishable items such as hot drinks. Both are set to feel the effect of the sales dip of these items continued from the already warm fourth quarter of 2015. Indeed, Kohl’s already has stated that it will close up to 18 stores as a direct response to weaker than expected fourth-quarter sales, and it is not unreasonable to assume there may be further closures announced throughout the second half of the year if warm weather continues to reign in revenues.

Brick-and-mortar retailers are not the only ones set to struggle. At last count, Amazon.com, Inc. (NASDAQ: AMZN) generated $2.2 billion in sales through its wholly owned subsidiary, Zappos. Zappos is a specialty footwear retailer with a large winter footwear range. With less snow and rain and generally higher temperatures, Zappos will sell far fewer shoes and boots than it otherwise would.
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Shifting to a slightly less obvious element of weather-affected retail, a report by the Washington Post back in November stated that a 10-inch snowstorm would increase four- wheel drive sales by 6% to 10% across the two to three weeks following the storm. States such as Maine, Colorado and Washington regularly get in excess of 75 to 100 inches of snow annually. The warm weather seen across this first quarter already has scuttled much of the chances of falls of this magnitude, and the chances of 10 inches of snow between March and May are minimal as we head into a mild second quarter of 2016. Indeed, in 2014, sport utility vehicle (SUV) manufacturers such as Ford Motor Co. (NYSE: F) and Fiat Chrysler Automobiles N.V. (NYSE: FCAU) reported a surge in all-wheel drive (AWD) sales in response to the unusually cold 2013/14 winter.

That this surge should reverse into a slump across a period of opposite conditions is par for the course.

By Matt Winkler