Over 2,300 years ago Sun Tzu said it best “Know the weather and know the field and your victory will be complete.” While many retailers new the “field”, the bad economy this holiday/Winter season, the weather was the big unknown! As late as November the predictions from organizations like the National Retail Federation were that retail same-store sales were going to be +2%, +2.2%, +2.5% but what actually happened was -2.7% in November, -1.9% in December and very likely -2.5% or worse in January 2009. But it shouldn’t have been a surprise as simple analysis on the right metrics very clearly warned of the impending “perfect storm”.
In December the two statistically most significant factors for retail industry same-store sales (SSS) are cold/snow (77% significance) and the consumer confidence index (75% significance). With consumer confidence at an historic low (38 in December) simple regression of retail sales (green dots) predicted retail sales would follow suit – worst ever. The index was almost half of the previous record low which predicted something that had never happened before – negative December SSS.
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But the more important factor was actually the cold and snow which once again history would have told us how bad it could get. While December overall was the coldest in 8 years (2nd coldest in 20) for the U.S. it was also the snowiest in 20 years with the week before Christmas very likely the snowiest in 114 years. The chart below shows just how much snow fell during this one critical week. The last time it was this cold and snowy prior to Christmas was 2000 which resulted in the worst retail sales ever - this year snowfall was even more. Combined with the worst consumer confidence ever – it wasn’t surprising that retail sales would trend well below +0.7%; well below the rosy predictions of +2.0%!
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Know the weather and victory will be yours!
January’s weather - FRIGID and more snow. The U.S. will have the coldest January in 5 years, snowiest in 4 years and we already know consumer confidence will be well below the previous record low of 66 (currently 38). Any predictions for January? The answer should be obvious! With analysis of the past 24 years showing a 90% correlation between retail SSS and consumer confidence and 78% to cold/snow being very bad for sales (warm/dry is actually best in January for stronger retail sales), it shouldn’t be a surprise when retail industry same-store sales come in at -2.7% or lower – potentially the worst in history for any month!