The sweltering heat wave that's sweeping across the Northeast, Midwest and Southeast U.S. is expected to scorch sales for many retailers. This concern comes just as retailers are reporting uneven results for June.
"In extreme temperatures hot or cold retail business goes down,"says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment-banking-services firm. "There are some areas beverages, air-conditioning and lightweight sportswear that do better, but overall, if you speak to 90% of retailers, they will tell you that business is hurt because people simply are not in the mood to shop."
The month of June was the second warmest in the past 50 years in the U.S., and July is already off to a blistering record-breaking start. In recent days, New York City hit 103°; Baltimore, 105°; Newark, N.J., 103°; Philadelphia, 102°; and Providence, R.I., 102°, according to Evan Gold, a vice president at Planalytics, a firm that tracks and quantifies the impact weather has on businesses. The July 4 weekend was also a scorcher, reversing last year's Independence Day weekend weather, which was the coolest in 12 years, he says.
Typically, it takes more than one hot day to noticeably alter consumer behavior. But if the heat lasts longer, people tend to stay indoors and don't go shopping "unless they absolutely have to," says Bryan Eshelman, a managing director and retail expert at AlixPartners LLP. In Manhattan, for example, the normally overcrowded sidewalks are relatively bare. "Madison Avenue is empty you could bowl down the street," says Davidowitz.
While June was abnormally warm, weather is not seen as the determining factor in most sales reports for the month. Big gainers in June include Abercrombie & Fitch, which saw same-store sales rise 9%, and Nordstrom, which saw a 14% rise. For most retailers, heavy promotions and discounts were a major factor in growth.
But as the summer progresses, weather is emerging as a potent force. In June, sales of air-conditioning units in the U.S. soared 30% from the same period a year ago, while sales of pool chemicals rose 18%, bottled water 8%, fitness drinks 10%, swimwear 22% and sun-care products 8%, according to Planalytics. So far in July, sales are even higher in these categories; air-conditioner sales, for example, are up 66% on average in the U.S. and 167% in the Northeast.
That's good news for hardware retailers such as Home Depot and ACE Hardware, which are enjoying strong demand for home-cooling equipment a boost that should help offset weaker demand for lawn mowers and gardening supplies. The heat also lifts sales in certain aisles for large retailers such as Walmart, Target and grocery-store chains, which are seeing increased demand for bottled water, fruit, water toys, suntan lotion and swimsuits. "We polled various clients and found more than one grocery chain ran out of stock on sports drinks and bottled water this weekend," says Eshelman.
While the eastern U.S. has been recording record heat, however, markets in the West, such as Seattle and Phoenix, have had it cooler than last year. As a result, retailers that sell light, warm-weather products with big exposure to eastern markets will likely benefit most.
On the flip side, apparel retailers that are already peddling their back-to-school and fall wardrobe fashions will likely take the biggest sales hit. "Most retailers are in transition to back-to-school at this point ... and shoppers don't want to think of layering on a sweater or buying a new outfit for school" in this heat, says Eshelman.
Does this mean Wall Street should brace itself for a significant decline in retail sales when it posts its quarterly results? Not necessarily. Eshelman expects most to post better year-over-year sales even if they take a hit from the heat wave, since they face easy year-over-year comparisons in June and July over last year's dismal sales numbers. But all bets are off if the heat wave extends into August. If this happens, retailers will face a triple whammy: not just from heat-exhausted shoppers but also from tougher year-over-year sales comparisons and possibly a softening economy. "I think it's a very uncertain environment going forward [hot] weather or not," says Eshelman.