One of the warmest winters in decades has some of Canada’s biggest retailers wishing for a snow day.
Companies that count on a cold and snowy winter are struggling through the mildest season in at least 20 years – and sluggish sales of everything from heavy coats to snow blowers, windshield wiper fluid, skis and even flu medications in parts of Canada. The unexpectedly mild weather is hitting retailers at a difficult time in the shaky economic recovery as consumers spend cautiously, worried about mounting debts and unemployment rates.
There are already signs that when Canadian Tire Corp. Ltd. which also owns big apparel and sporting goods chains, Sears Canada Inc. and Shoppers Drug Mart Corp. report their fourth-quarter results, they will cite the weather as a factor in a weaker performance. Indeed, the scarcity of snow is giving new meaning to Canadian Tire’s new ad slogan, Bring It On.
“Canadian Tire’s advertising message, ‘Winter – Bring It On’ went from a boast to a plea,” said Keith Howlett, an analyst at Desjardins Securities.
Across North America, weather is playing havoc with businesses’ results after forecasters predicted a cold, snowy winter, prompting companies to stock up on snowboards, shovels, heaters and other seasonal goods. The warm and dry winter in a lot of the country is now expected to squeeze sales and margins at a time when retailers already feel the crunch of a difficult recovery. The pain may persist into spring following forecasts of more unseasonable weather in April, which can delay sales of warm-weather goods and result in more of them having to be cleared out at discounts, hurting profits.
“Definitely weather is a big drag on things this year,” said Richard Woolley, senior vice-president at consultancy Weather Trends Inc. It advises retail giants such as Wal-Mart Stores Inc. and Target Corp. – and is calling this winter the mildest in at least 20 years with a cool April looming. “You probably can’t give away a wood stove.”
On average, apparel retailers lose 4 per cent of sales in weather-driven categories for every one degree Celsius of unseasonably mild weather, according to his estimates. With three degrees C warmer weather this winter than is typical for Canada, the unusual temperatures have melted away 10 to 12 per cent of retail sales in those sensitive categories, Mr. Woolley calculated.
Merchants carrying the most volatile types of goods, such as space heaters, fire logs and snowboards, could see a 15 per cent squeeze in their sales for every one degree of lower temperatures, he said. “It wouldn’t surprise me if they’re off 20 to 30 per cent in those categories.”
David Russell, co-owner of the Sporting Life chain, estimated that ski- and snowboard-related sales are down about 20 to 25 per cent from last year, forcing him to run deeper discounts earlier in the season to clear inventory.
“If you sell snow tires or snow blowers, you’ve got the same problem,” he added. “A country like Canada needs four seasons. There’s commerce done on each of those four seasons. When you miss one or one’s delayed, it impacts somebody.”
Still, retailers also find ways to minimize the pain. London Drugs is among drugstore chains whose sales of cough and cold medicines have dropped because of the milder weather as well as higher use of flu shots, said Wynne Powell, chief executive officer at London Drugs in Richmond, B.C. But he said an aging population that needs to buy more drugs over all helps offset weather-related sales shortfalls.
Canadian Tire, which owns clothier Mark’s Work Wearhouse and sporting goods retailer Forzani (Sport Chek and other chains), will feel the hit, Mr. Howlett predicted. He reduced his profit estimates to $5.32 a share from $5.50 in 2011 and to $6.15 from $6.25 in 2012.
At Sport Chek and other Forzani chains, sales of fashion items probably performed well but sales of ski jackets and sporting equipment will be soft, predicted Mark Petrie, an analyst at CIBC World Markets.
Retailers that aren’t weather-driven, such as jewellery stores, can benefit from the milder weather, which made it easier for consumers to get out and shop, Mr. Woolley said.