August Retail Same-Store Sales came in lower than Wall Street expected at 1.7% making this the 3rd weakest gains in 23+ years according to data from the International Council of Shopping Centers (ICSC). Of course the obvious answer cited was the economy and lower consumer confidence (57) which was the 2nd lowest level in 23+ years.
But a quick statistical analysis reveals there is a bigger factor here and that’s the weather! The chart below shows retail industry same-store sales (BARS) over the past 8 years which includes the high consumer confidence year of 2004 and the weak consumer confidence years in the 2002-2003 time-frame and the current weak period in 2008. The line shows the national temperature (blue line is a cold August, red line a warm August). Precipitation is noted in the boxes as very dry, dry, wet or very wet. The consumer confidence index is posted below the year. Interesting to note that the correlation to temperatures is 80% (warmer is better for stronger sales), to precipitation 72% (drier is better for stronger sales) yet only 24% correlation to consumer confidence (leading economic index)!
(CLICK ON CHART FOR A LARGER IMAGE )
The ideal weather would be a warm/dry August as that is great for retail clearance sales and benefits the stand alone and home center outlets. It’s interesting to note that the highest consumer confidence index was 96 in 2004 but once again the weather trumped the economy with a cold/wet month and retail sales were the worst in 23+ years. The really hot/dry years in 2003, 2005, 2006 had much stronger retail same-store sales, all above average gain years. The really hot August last year only had half a good thing as the wetter weather (16% wetter nationally than the year prior due to heavy rain in the West and North – drought did occur in the Southeast). With August 2008 coming in as the 2nd coldest August in 11 years and wettest in over 16+ years, it’s not surprising why sales were so weak.
Note: the sales and weather data used in this analysis is based on the National Retail Federation 4-week August (in 2008 that was from 8/3 thru 8/30).
Other interesting tid bits that statistics can tell us include the impacts of land falling hurricanes. The more active years with more land falling storms cost the retail industry 1.1% in lower gains due to the disruptive nature of evacuations and damage to stores.
The Power of 1F change on a national monthly scale is significant as 1F warmer yields a +0.6% gain for the industry per degree. But, as was the case in 2008, the flip side is also true with an average reduction in sales gains of -0.5% per 1F change in August National temperatures.
All the patterns flip in September where cold/wet/snowy yields much stronger sales gains than a hot/dry September like we had last year. So, look for upside surprises this month with retailers doing better than expected!