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SuccessStoriesonUserEngagementGlobalScience&Technology,Inc.
CaseStudy5:RetailandManufacturing
March31,2017
2017
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TableofContents:
i.Successstoriesonuserengagement 3
1.Reportoverview 4
2.Introduction 6
3.NCEIdataproductsusedbyretailandmanufacturing 8
3.1.ClimateMonitoringreports 8
3.2.RegionalSnowfallIndex 9
3.3.Howarethesedataproductsused? 10
4.Applications:ClimateMonitoring,StateoftheClimateSummaries 10
4.1.CompanyX 11
4.2.FootLocker,Inc. 11
4.3.KohlerEngines 12
4.4.Conagra 13
4.5.Silvercote 14
5.Applications:RegionalSnowfallIndex 16
5.1.RidgemontEquityPartners 16
5.2.HondaPowerEquipment 17
5.3.Sears 18
5.4.USAutoPartsNetworkInc. 19
5.5.InvestmentBankX 19
5.6.GuggenheimPartners 20
6.Conclusions 22
References 23
Appendix1:Firmsandpersonnelinterviewed 25
Appendix2:Industrysubsectors 26
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i. SuccessStoriesonUserEngagement
ThisreportexaminesuserengagementwithNOAA’sNationalCenters forEnvironmental Information’s
(NCEI)climateandweatherdata.Itdemonstratesthevaluethatthefreeandpubliclyavailableprovision
of NCEI’s climate and weather data has provided to the retail and manufacturing industry. The
numerous interviews, and desk based research that inform this study, detail how retail and
manufacturers are using NCEI’s climate and weather data, for what purpose, and ultimately what
benefitisgleanedfromitsusage.Asdocumentedinthisreport,NCEI’sclimateandweatherdataareof
fundamentalimportancetothesesectorswhichprovideessentialandluxurygoodstotheAmericanand
internationalpublic.
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1. ReportOverview
Thissuccessstoryisbasedoninterviewswithrepresentativesfromretailandmanufacturingcompanies,
andfinancialfirmswhoinvestintheseindustries.Intervieweesincluderetailersrepresentingmotor
vehicleandparts,foodandbeverageandapparel,andmanufacturersrepresentingmachinery,motor
vehiclesandfabricatedmetalparts.Alsointerviewedinthisanalysisarefinancialinstitutionsthatinvest
ortradestocksinmanufacturingorretailcompanies,oruseindustrydataalongsideclimateand
weatherdatatounderstandvariabilityinmacroeconomicconditions.Alistofcompaniesthatwere
interviewedforthisstudyisprovidedinAppendix1onpage25.
Thisreportfocusesonapplicationsofweatherandclimatedata,productsandservicesinNCEI’sClimate
MonitoringSection.ThisSection“monitorsandassessesthestateoftheEarth’sclimateinnearreal-
time,providingdecision-makersatalllevelsofthepublicandprivatesectorswithdataandinformation
onclimatetrendsandvariabilityincludingperspectivesonhowtheclimateoftodaycomparestothe
past”(NOAANCEI,2017a).Twoproductsofparticularimportancetoretailandmanufacturersinclude
theStateoftheClimatereports(annualandmonthly),andtheRegionalSnowfallIndex(RSI).Thisreport
willfocusonhowtheseproductsareusedbytheseindustries,detailingthebenefitsthatarederived
fromtheiruse.
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Acronymsused
MoM:MonthoverMonth
NCDC:NationalClimaticDataCenter(now,NCEI)
NCEI:NOAA’sNationalCentersforEnvironmentalInformation(formerlyNCDC)
ND:NoDate
NESIS:NortheastSnowfallImpactScale
NOAA:NationalOceanicandAtmosphericAdministration
NRF:NationalRetailFederation
RSI:RegionalSnowfallIndex
YoY:YearoverYear
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2. Introduction
Retailandmanufacturingaretwoindustrieswithinabroadersupplychainthatproduceanddeliverboth
essentialandluxurygoodstotheAmericanandinternationalpublic.Manufacturerstransformraw
materialsintofinishedproductswhicharethensoldbyretailerstobusinessesandindividualconsumers
inbothphysicalandonlinestores.Thesetwoindustries,alongwithothercomponentsofthesupply
chain,areresponsiblefortheproductionandsaleofeverythingfromfoodproducts,toindustrial
machinery,tohighendapparel,andprovideitemsthatarebothessentialtoourhealthandwellbeing
(i.e.food,materialsforhousing)andotheritemsforpleasureandrecreation.
Figure1:Manufacturingandretailaretwoprimarycomponentsofalongersupplychainthatprovidegoodstoconsumers.Theprimarycomponentsintheretailsupplychainincludesupplier,manufacturer,distributor,retailerandconsumer.Source:Acclimatise
America’sretailandmanufacturingindustriesaremajorgeneratorsofeconomicgrowthand
employment(NRF,2014).Manufacturingcontributes$2.17trillionor12%totheU.S.GrossDomestic
Product(GDP),whileretailcontributes$1.06trillionor5.9%totheGDP(U.SBEA,2016).These
industriesarealsomajorenginesofemployment.Manufacturingprovides12.3millionjobs,and
employs9%oftheU.S.workforce,andretailemploys9.9millionpeopleandemploys7%oftheU.S.
workforce(U.S.BLS,2015).Retailactivityisoftenusedasabarometertogaugethehealthofthe
Americaneconomy,duetotheimportantroleofthissector(RILA,2016).Consumerspendingaccounts
fornearly70%ofthetotalU.S.economicoutput,whilegovernmentspending,bycomparison,is18%
(Amadeo,2017).
Thewelfareoftheretailandmanufacturingindustriesareinfluencedbyarangeofmacroeconomic
factorsincludingemploymentrates(i.edisposableincome),customervalues(i.e.fairtrade,organic),
governmentregulation,resourceavailability,technologicaladvances,andweather.Accordingto
GoldmanSachs,retailandmanufacturingareamongthemostweather-sensitivesectors,asweather
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impactsbothdemandsforgoodsandservices,andcustomersshoppinghabits(Hatziusetal,2015).For
example,warmerweatherconditionsduringwintermonthscandecreasethedemandforarangeof
costlyseasonalapparelitemsincludingcashmeresweatersanddowncoats,industrialitemssuchas
snowblowers,andrecreationalitemssuchassnowboards.Ontheotherhand,astrongwinterstorm
mayimpacttheabilityorwillingnessofcustomerstogettostores,ortheabilityofgoodstogetto
market.However,thismayproveprofitableforonlineretailerssuchasAmazonthatallowcustomersto
shopfromthecomfortoftheirownhomes(Hatziusetal,2015).Whiletheretailindustryasawhole
tendstosufferfromunseasonalweatherpatternsorextremeevents,weatherpatternsaffect
manufacturesandretailersincomplexanddifferentways(AnonymousFinancialAnalyst,personal
communication,February16,2017).
Whileretailersandmanufacturerscannotentirelyinsulatethemselvesfromtheimpactthatweatherwill
haveontheirbusiness,theycanuseweatherandclimatedatatounderstandhowweatherimpactstheir
businessperformance,andtakeactionstobetterplanforweatherconditions.Formanufacturers,this
couldmeanmanufacturingstockinaccordancewithforecastedweatherconditionsandforretailers
allocatingmerchandiseinregionswhereweatherconditionsaremoreconducivetosales.This
informationcanalsosupportinvestorswhendecidingtoavoidorpursueinvestmentsincompanieswith
weathervolatility.
NCEI’sClimateMonitoringSectionoffersdataproductsthataidmanufacturers,retailers,andinvestors
inthiscapacity.ProductsofparticularimportanceincludetheannualandmonthlyStateoftheClimate
reports,andtheRegionalSnowfallIndex(RSI).Thissuccessstorywillfocusonhowretailers,
manufacturersandequityfirmswhoinvestintheseindustries,utilizeNCEI’sproductstounderstandthe
impactsofweatherontheirbusinessandmakedecisionsaccordingly.
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Figure2:StateoftheClimatemonthlyreportsareusedbyretailersandmanufacturerstounderstandhowtemperatureinagivenmonthoryear,deviatedfromaverageconditionsSource:NOAA’sNCEI
3. NCEIdataproductsusedbyretailandmanufacturing
3.1. ClimateMonitoring:StateoftheClimateSummaries
NCEI’sClimateMonitoringSectionoffersseveralproductsthatareusedbyretailandmanufacturers.
TheseincludetheStateoftheClimatereports,ClimateataGlance,andtemperature,precipitation,and
droughtdata.TheStateoftheClimatereportsaremonthlyandannualsummariesthatrecapclimate-
relatedconditionsonanationalandglobalscale.Thesereportsplacethepriormonth(oryear)within
thehistoricalcontextofallothermonths(oryears)beforethat.Forexample,theJanuary2017report
ranksthismonthasthe18thwarmestJanuaryonrecord,ascomparedtoallotherJanuarysintheperiod
ofrecord(1895present)(NOAANCEI,2017a).Thesereportsalsoprovidemoredetailedinformation
pertainingtotemperature;suchasminimumandmaximumdaytimeandnighttimetemperatures,
precipitation;belowaverage,nearaverage,andaboveaverageregionsofprecipitation,information
pertainingtosnowcoverageandiceextent,andsummariesofsynopticconditions1.Thereportalso
providesanoverviewofsignificantclimateanomaliesandextremeeventssuchastornadoes,hurricanes
andtropicalstorms,droughts,andwildfires.Inadditiontonation-widesummaries,thereportsfurther
offersummariesforthesixregions2providedbyNOAA’sRegionalClimateCenters(NOAANCEI,2017b).
1“Phenomenathatcauseweatherincludingthe‘jetstream,frontsandlowpressuresystemsthatbringprecipitation,highpressuresystemsthatbringdryweatherandthemechanismswhichcontrolthesefeaturessuchasElNino,LaNinaandotheroceanicandatmosphericdrivers”(NCEI2017c)2Northeast,Midwest,Southeast,Southern,Western,HighPlains
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Figure3:ThesixclimateregionsthatareincorporatedinRSISource:NOAANCEI
Figure4:RSIstormsfromcategory1to5Source:NOAANCEI
3.2. RegionalSnowfallIndex(RSI)
RSIisaregionalsnowfallindexcalibratedand
producedforeachofthesixNCEIclimateregions
intheeasterntwo-thirdsofthenation.Itranks
snowstormimpactsonascalefrom1to5based
onthespatialextentofthestorm,theamountof
snowfall,andpopulationbasedonthe2010
Census.Theinclusionofpopulationmeansthat
theindexbetteraccountsforsocietalimpacts,as
snowstormsinremote,lesspopulatedareas
generallydonotcausethesameoveralllevelof
disruptionassnowstormsinurbanareas(Squires
etal,2014).
TheRSIevolvedfromtheNortheastSnowfallImpactScale(NESIS).NESISwasdevelopedforsnowstorms
thathaveamajorimpactontheNortheastalthoughitincludestheimpactofsnowstormsonother
regionsaswell.ItishowevercalibratedtoNortheastsnowstorms,meaningthatallsnowstormsare
comparedtotheNortheastbaseline.TheRSI,bycontrast,isaregionalindexandthereforeaseparate
indexisproducedforeachclimateregion.Itisimportanttodiscriminatebyregionconsideringthata5-
inchsnowstorminthesoutheastmaybecrippling,whileinthenortheastitmaymeantypicalwinter
conditions(Squiresetal,2014).
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3.3. Howarethesedataproductsused?
TheStateoftheClimatesummariesandRSIareusedbyretailers,manufacturers,andinvestorsin
severalcapacities.Theyareusedtohelpcompaniesunderstandhowwelltheyareperformingrelative
toweatherconditions.Thisisusuallydonethroughthepreparationofquarterly,yearoveryear(YoY)
andmonthovermonth(MoM)reports.YoYandMoManalysisareusedtoevaluateacompany’s
performanceonanannualormonthlybasis,ascomparedwithaprioryearormonth,respectively.
Theseanalyseshighlightfactorsthatareaffectingbusinessperformance,forexampleweather(‘Year
overYear–YOY’,ND).Thesereportscanhelpexplain‘artificially’loworhighbusinessperformancetoa
company’sExecutiveBoardoraninvestor.Forexample,acompanycouldperformreallypoorlyina
monthasaresultofweatherconditions,howeveritmayjustbeatemporaryphenomenaandnotan
indicatorofoveralleconomicdownturn.Whenpairedwithclimateoutlooks,aggregatedanalysisof
climateandsalesdatahelpinformfuture-decisionmakingsuchashowmuchproducttomanufacture,
orhowtostockitemsinvariousmarkets.
Investorsrelyonthesedataproductstoevaluateinvestmentsincompanieswithweathervolatility.Asa
partoftheirdue-diligenceprocessonevaluatingpotentialinvestments;analystsseektounderstandall
thefactorsthataffectacompany’sperformance.Ifweatheristiedtoacompany’sperformance,
investorsturntothesedataproductstoquantifiablyunderstandtheserelationships,andmakeawell-
informeddecisionontheirinvestment.
Investmentbanksrefertothesedataproductstounderstandthemacroeconomicconditions.
Investmentfirmswilloftenreleasemacroeconomicanalysis,whichhighlighttheexternalfactors
affectingtheeconomy’sperformance.Theseanalysescanincludecommentaryonweather,particularly
iftherewasanimpactfulweathereventthataffectedtheeconomy(i.e.majorsnowstorm,heatwave,
hurricane).Intheseinstances,analystswillrelyonNCEI’sdatatounderstandtheimpactthatweather
hadonkeyeconomicindustriesincludingretail,manufacturing,payroll,andmore.Thefollowingsection
detailscompany-specificapplicationsoftheStateoftheClimatesummariesandRSIacrossretail,
manufacturing,andinvestment.
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4. Applications:ClimateMonitoring,StateoftheClimateSummaries
4.1. CompanyX
CompanyXisanAmericanretailerthatsellscollegiate-inspiredcasualclothingandaccessories.The
strategicplanningteamseekstounderstandthemacroeconomicconditionsthataffectconsumer
behaviorandpurchases.Theyanalyzeweathertrendsasacomponentofthislargeranalysis,and
compareitagainstsalesperformance.Likeotherretailerswhosellouterwear,CompanyXhasbeen
impactedbyunseasonablywarmwinterconditionsandreducedsalesofwinterapparelitemsinthe
U.S.AsamemberofStrategicPlanningnotesaboutunseasonalweather,“studentsgoingtoschoolin
mid-Decemberwhenit’s60degreesoutsidearenotgoingtobethinkingaboutbuyingajacket”
(CompanyX,personalcommunication,Jan12,2017).
TheStrategicPlanningteamcomparesthelocationofthecompany’sstoresintheU.S.andEurope
againstthemonthlyStateoftheClimatesummariestounderstandhowunseasonalweatherconditions
mayhaveinfluencedconsumerpreferencesforapparel.Inparticulartheylookforaboveorbelow
averagetemperatureandprecipitationpatternsrelativetostorelocations.Thisinformationhelps
CompanyXunderstandhowweatherinfluencedthecompany’sperformanceinpastmonthswhen
preparingquarterlyorMoMreportsfortheBoardandExecutiveCouncil.Itcanalsobeusedtoimprove
productoptimizationinthefuture,byunderstandinghowwellproductssellincertainweather
conditions(otherfactorsaside).Theinventoryandplanningdepartmentcanthenmakemoreinformed
decisionsregardingproductplacement,ifweathertrendscontinue(CompanyX,personal
communication,Jan12,2017).
4.2. FootLockerInc.
FootLockerInc.isanathleticfootwearandapparelretailerthatoperatesover3,000mostlymall-based
storesnationwide.OverthepastyearFootLockerhasbeenusingseveralproductsfromtheClimate
Monitoringsuiteincluding;ClimateataGlance,temperature,precipitation,anddroughtdata,andthe
monthlyStateoftheClimatesummaries.Thesedataareusedtounderstandtheweather-relateddrivers
thatcauseutilitycostsatFootLocker’sstorestobehigherorlowerthanbudgeted.FootLocker
correlatesmonthlytemperaturedatawithutilitycostsfromcorrespondingstoreslocations,to
understandhowutilitybillscorrelatewithtemperatures.AnanalysisperformedbyFootLockerin
January2017showsthata1.5°CincreaseinJanuarytemperaturesnationwidemeantthatheating
demandwasdownandthereforeutilitybillsforstorelocationswerelowerthanexpected.FootLocker
foundthattheJanuary2017temperatureincreaseof1.5°CcomparedtoJanuary2016’snational
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average,correlatedto1centpersquarefootsavingsinenergycoststhatmonth(Anonymous,personal
communication,Mar9,2017).AstheaverageFootLockerstoreintheU.S.is4,000squarefeet,this
couldmeansavingsofroughly$120,000forthemonthofJanuaryalone(FootLocker,Inc.,2017).
FootLockerrequiresaccesstoarangeofdatasourcestovalidateanychangesintheirexpenseswhen
reportingtotheExecutiveCommittee.Thisinformationcannotbeanecdotalorbasedonassertionsbut
needstocomeintheformofhardverifiable,trusteddata.Withrespecttoclimateandweatherdata,
FootLockerispleasedwithNCEIasitprovidesatrustworthyandauthoritativesourceofinformation.
FootLocker’sfutureobjectivesaretoretrospectivelycorrelatehistoricaltemperaturedataovera3,5,
oreven10-yeartimeperiodforbudgetingpurposes.Ifaretrospectivetemperatureversusutilitycost
analysiswereperformedforallmonthsandviabletemperaturescenarios,FootLockerwouldbebetter
informedonhowtemperatureimpactstheirutilitycostsandthereforebetterequippedforbudgeting.
Thisinformationcouldthenbepairedwithclimateoutlooks,andusedtodeterminehowmuchbudget
toallocateforfutureutilitycosts.Moreaccuratebudgetingwouldmeanthatmorefundingcouldbe
allocatedtowardcapitalinvestments,whichwouldcontributetotheoverallprofitabilityofthecompany
(Anonymous,personalcommunication,Mar9,2017).
4.3. KohlerEngines
KohlerCompanyisanAmericanmanufacturingcompanybestknownforitsplumbingproducts,however
thecompanyalsomanufacturesfurniture,cabinetry,tiles,engines,andgenerators.KohlerEnginesisa
manufacturerofgasoline,diesel,andalternativefuelengines.Ontheconsumersidetheseenginesare
usedinlawnmowers,tillers,andpressurewashers,whileontheindustrialsidetheyareusedinforklifts
andheavydutyconstructionequipment.RetailersthatselllawnmowerswhichcontainKohlerengines
includeHomeDepot,JohnDeere,Lowe’s,andtheTractorSupplyCompany.
KohlerEnginesreferstothemonthlyStateoftheClimatesummariesalongwiththeDroughtMonitoring
Products,particularlyinspringandsummermonthstounderstanddemandforlawnmowers.Warmand
wetconditionsareprimeforgrassgrowth,creatingmorefavorablemarketconditionsforlawnmower
sales.Aprolongedwinterorlatestarttothespringseasoncandelaysales,andinturncauseretailersto
stock,ratherthansell,inventory.KohlerisanaviduserofNCEI’sdroughtproductsastheyprovide
currentdroughtinformationonacountybasiswhichcanbepairedwithforecastsoffuturedrought
conditionstoinformdemandforecasting.
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KohlerEnginesreferstotheStateoftheClimatesummariesonamonthlybasistounderstand
temperatureandprecipitationtrendsrelativetoprioryears.ThisinformationisusedtodevelopMoM
reportswhicharesentoutbusiness-wide,providingstaffandleadershipwithasenseofhowtheseason
isshapingupandwhetherKohlerisontracktomeetitssalestargets.Thisinformationcouldbeusedto
tweakdemandforecastsifweatherconditionsarecreatingmoreorlessfavorableconditionsfor
lawnmowersales(ScottSmith,personalcommunication,Feb10,2017).
4.4. Conagra
ConagraBrands,Inc.headquarteredinChicago,isoneofNorthAmerica'sleadingbrandedfood
companies.ThecompanyprovidesarangeoffoodproductsincludingiconicbrandssuchasMarie
Callender's®,Reddi-wip®,Hunt's®,HealthyChoice®,SlimJim®andOrvilleRedenbacher's®,aswellas
emergingbrands,includingAlexia®,Blake's®andFrontera®.Conagrasellstodozensoflarge
supermarketchainsincludingCompanyY.
ConagraBrandssuppliesarangeoffoodproductstoCompanyY,includingdrygroceryproducts(like
cannedtomatoesandhotcocoa)wheresalesperformanceiscloselytiedtoweather.Theseitemssell
wellinwintermonthswhenpeopleareusingcannedtomatoestomakechiliorothercrock-potdishes,
ordrinkinghotcocoaonacoldday.AsConagraBrandssuppliesahighvolumeoftheseproductsto
CompanyY,theyareinterestedinkeepingtabsontheweathertrendstoinformtheirforecastingof
productsales.
ConagrausesthemonthlyStateoftheClimatereportstogenerateend-of-seasonandMoMreports.
ThisinformationisbrokendownintoCompanyYregionsforeachpartofthecountry.Asshowninfigure
5,Conagracompares2016temperatures(leftgraph)andsales,with2017temperatureandsales(right
graph)andnotesanoverallincreaseintemperatureandanoveralldecreasein2017salesperformance.
NationalaveragetemperaturesforJanuary2017increasedby0.76°C(+4.35%)ascomparedwith
January2016,andsalesdeclinedby0.61%ascomparedwithJanuary2016sales.Conagraattributesthe
declineinsalesyearoveryeartorisingtemperaturesinkeyareasofthecountry.Thisisfurther
indicatedinFigure5whereitshowsthataboveaverageJanuarytemperaturescostthecompanyover
$100,000inrevenueintheMidAtlanticandSoutheastregions.Thepost-analysisreportalsonotes
majorwinterstormevents,althoughdespitetheiroccurrence,salesinallregionsbutonedecreasedas
comparedto2016.Thisistheresultofconsumersbeingunabletogettostores.
Thistypeofanalysisisperformedattheendofeverymonth,andattheendofeveryseason,to
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understandsalesperformancerelativetoothermonthsandseasons.ThisalsoprovidesConagraBrands
withanunderstandingofhowtheirproductsperformundercertainweatherconditions.Whenpaired
withweatheroutlooks,thisinformationcanbepresentedtoConagra’sleadershipteamandCompanyY,
toadviseonoptimalstockinginCompanyY’ssalesregions.WithoutthemonthlyStateoftheClimate
reports,Conagrawouldbemissingakeypieceofdatatosupporttheseanalysis(Anonymous,personal
comm,Feb24,2017).
Figure5:January2017Month-over-MonthreportforbrandAandbrandB(unknown)
Source:Conagra
4.5. Silvercote
Silvercoteisamanufacturerofhigh-qualitymetalbuildinginsulationproducts,designedtoproject
specifications.Itsproductsareusedintheconstructionofpre-engineeredmetalbuildings(warehouse
type),includingsixCostcos,two1,000,000squarefootFedExdistributioncenters,and205O’ReillyAuto
Partsstores,eachyear(RobertTiffin,personalcommunication,February7,2017).Thesemetalbuildings
canhaveupto600footwalls,andrequirelargeamountsofinsulationtostabilizethestructure’sinterior
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Figure6:MonthovermonthprecipitationanalysiscreatedbyGuardianBP,theparentcompanyofSilvercote,tounderstandprecipitationimpactsonsalesinMarch2013,versusMarch2012.Source:Silvercote
temperatureandpreventmoisturefromenteringthroughcondensation(‘InsulateyourSteel…’,2017).
Precipitationandcoldtemperaturescreateunfavorableconditionsforconstruction.Concrete,
whichholdstheanchorrodsforsupportingmetalcolumns(pieces)ofmetalbuildings,willnotsetwhen
it’stoowetorcold.ThecolumnsaretheprimarystructurewithinwhichSilvercotemanufacturescustom
insulation.Additionally,accumulationofrainorsnow,maymakethejobsiteunsafeforconstruction.If
constructionjobsaredelayed,Silvercote’sordersmaybepushedbackcausingrevenuestoshiftinto
latermonths.
SilvercoteusestheStateoftheClimatesummariestocreateaYoYandMoManalysis,tounderstand
howbusinessisoperatingrelativetoprioryearsandmonths.ThishelpsSilvercoteunderstandwhen
money‘felloffthetable’meaningthatrevenuesshiftedintolatermonthsorthenextyear,dueto
constructiondelays.Whenpairingtheseanalyseswithweatherforecasts,theycanalsobeusedto
understandwhethertheyneedtomakeadjustmenttotheirsalesterritories.Forexample,ifaregionis
notmeetingsalestargetsduetoweather,andsimilartrendsareprojectedtocontinue,Silvercotecould
considerreadjustingthesizeofthesaleterritoryorprioritizesalesinregionswhereweatherconditions
areanticipatedtobemorefavorableforconstruction.NCEI’sdatahelpsinformimportantdecisionsto
improvethecompany’sperformance(RobertTiffin,personalcommunication,Feb7,2017).
“Asasalesleaderinourcompany,inprojectionsgoingforwardorexplanationsgoingbackward,oneof
theactivetoolsthatIusenowistheNCEIdata.I’veshownthatit’scredibledata,I’veshownthatit’s
reliabledata,and[within]ourcompany,mybossandhisbossinparticularhasacceptedit,andisnow
actuallystartingtoaskforit”-RobertTiffin,Silvercote
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5. ApplicationsofRSI
5.1. RidgemontEquityPartners
RidgemontEquityPartnersisaCharlotte-basedmiddlemarketbuyoutandgrowthequityinvestor.Since
1993,theprincipalsofRidgemonthaveinvestedover$3.5billionacrossmorethan135companies.The
firmfocusesoninvestmentsof$25millionto$100millioninseveraldifferentindustriesincludingbasic
industriesandservices,energy,healthcare,andtelecommunications/media/technology(SethGreene,
personalcommunication,February6,2017).
Ridgemontexploredaninvestmentinanautomotiverepairbusiness,anindustrywhoseperformance,
theyheardanecdotally,wascloselycorrelatedwithsnowfallandwinterstorms.Duringwinterstorms
thedebristhatliesontheroadcanflickupandhitwindshields,creatingsmallcracks.Ifprecipitation
setsinthesecracksandfreezesover,itcancausetheentirewindshieldtocrack.Further,winterstorms
andicyroadscancreatedangerousdrivingconditions,increasedcollisions,andthushigherdemandfor
automotiverepairpartsandservices.
Asapartofdue-diligenceprocessesinreviewingnewinvestments,Ridgemontsoughttounderstand
howsnowfallandwinterstormscorrelatetotheperformanceoftheautomotiverepaircompany.This
informationwouldprovideRidgemontwithanoverallunderstandingofhowweathercorrelatestothe
company’sperformance,andwhetherthecompany’searningshavebeenartificiallylow,orartificially
highinrecentyears.An‘artificiallylow’performance,meaningthatalackofsnowstormsinrecentyears
havemadethecompanylooklikeitisunderperforming,wouldpresentagoodopportunitytobuy.
RidgemontobtainedRSIdatafromNCEIandplotteditagainstthecompany’srevenueoveramulti-year
periodtoseehowcloselytheyaligned.Theyfoundthatthechartswerenearlyidentical,thereby
confirmingtheirspeculationthatthecompanyperformsbestduringandfollowingwinterstorm
conditions.
Asweatherissocloselytiedtothecompany’sperformance,havingtherightdatatoinformthispieceis
criticaltotheoverallinvestmentdecision,andhowtheinvestmentdealisstructured.“Animportant
aspectofinvestingisbeingabletopredicttherevenueandprofitabilityofabusinessovertimewhich
canbemoredifficultwhenexternalfactorscausesignificantswings.Inthiscaseweatheraffectsthe
financialperformanceoftheautomotiverepairbusinesswhichbringssomeconcernsthatwehaveto
consider,”explainsSethGreeneofRidgemont.IntheabsenceofRSI,Ridgemontwouldpotentiallybe
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makingadecisionworthtensofmillionsofdollarswithincompleteinformation.Weatherisn’ttheonly
factorgoverningthedecisiontoinvestintheautorepaircompany,howeveritisoneofmanyimportant
factors.IfRidgemontdidn’thavethisinformation,theywouldbemakinglessinformeddecisions,or
basingdecisionsonanecdotalinformation,ratherthanofficialdatasources(SethGreene,personal
communication,February6,2017).
5.2. HondaPowerEquipment(RSI)
HondaPowerEquipmentisaworldwidemanufacturerofoutdoorpowerequipmentforlandscape,
garden,construction,industrial,andrecreation.Someofitsproductsincludelawnmowers,snow
blowers,tillers,stringtrimmers,andwaterpumps.HondaCompaniesalsoproducecarsand
motorcycles.HondaPowerEquipmentreliesonRSIbothtoexplainapriormonthoryear’ssales,andfor
regionalandnationalforecastingandmerchandiseallocationofsnowblowers.
Inhighlypopulatedareasoftheuppernortheastandmidwest,wintersnowconditionsarecommon,
howevermajorsnowstormsoccurmuchlessfrequentlynearthecoastline.Withsignificantsnowfall
within50milesoftheI-95corridor,ahighly-populatedregion,salesofsnowblowersincrease.AstheRSI
factorsinbothpopulationdataandsnowdataintoitscalculation,thisprovidesHondaPower
Equipmentwithanunderstandingofhowsalesofsnowblowersareperforming,relativetothe
population.WhenHondaPowerEquipmentperformsaMoMandYoYanalysis,theyoverlaytheirsales
datawithRSI,tounderstandhowsnowconditions,orlackthereof,impactedtheirsales.
AnotherimportantapplicationofRSIrelatestomerchandiseallocation.Whenlargesnowstormsoccur
lateinthewinter,thepre-season(fall)islikelytobestrongonsnowblowersales.Retailerswillstock
inventoryontheirfloorsinlatesummerorearlyfall,andtargettheiradvertisingtowardssnowblower
sales.CustomerswillstartbuyingsnowblowersasearlyasAugustassnowstormsfromtheprevious
winterarestillfreshintheirmemory.Naturally,thegreaterthepopulationdensity,thehigherpre-
seasondemandforsnowblowers.HondaPowerEquipmentcanuseRSItoidentifyhighlypopulated
regionswheresnowstormsoccurredlateintheseason,andmakerecommendationstoretailerstostock
theirmerchandiseinthemoststrategiclocationstooptimizesales.
HondaPowerEquipmentalsofrequentlyusestheDroughtMonitoringProductstounderstandhow
droughtconditionswillimpacttheirsalesoflawnmowers,particularlyrecentlyintheWesternpartof
thecountry(WarrenReid,personalcommunication,February20,2017).
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RSIHELPSSEARSMEETITSCUSTOMERSNEEDSAFTER,ANDBEFORE,SNOWSTORMSSears,themajorU.S.retailerwithnearly800stores,haslongstruggledtomeetdemandforsnow
blowerswhenmajorsnowstormshit.Searsneededawaytomakebetter-informedguessesabout
whereandhowmanysnowblowerstohaveready.Searsneededhelpthemunderstandthis
uncertainbusinesstogetaheadofdemand.
WhenfirstfacedwiththisproblemSearstriedtoseeifcommercialclimatedataproviderscouldhelp
butfoundthatnoneofferedwhattheyneeded.AproductmanageratSearsfoundthatNCDC’sRSI
offeredthebestdataonsnowfallavailable,bothattherightlevelofgranularweatherdetailand
withthecrucialadditionofpopulation(thismanagerdidhavetoconvertSears’corporateregional
divisionstomatchtheRSIdivisions).Thissocietalemphasiswascrucial,since,forexample,a
snowstorminMarylandaffectssalesverydifferentlythananidenticalstorminBuffalo.
SearsalsousesRSItoforecastthecomingyear’sdemandforsnowblowers.Bycomparingpastsales
dataandRSI,theyfoundthatapastyear’ssnowfallwasamajordeterminantinsalesofsnowblower
nextyear.Theyparticularlynoticedhowsnowfalllateinoneyeardrivesearlyperformanceatthe
startofthenextwinter.SearsalsousesRSItorespondtomajorsnowevents.Itishardtopredict
snow,soSearslookstohistoricaldatafromRSItooptimizeitsinventoryatthebeginningofeach
seasonsothatwhenabigblizzardhitstheyarereadywithinventoryinstock.RSIprovidesthedata
theyneedtotakefulladvantageoftheirexistingcompetitiveadvantage:awidenetworkofretail
locationandsophisticatedlogistics.
SearswasappreciativeofthehelptheygotfromNCDC,butnotedtheinitialchallengeoffindingand
theninitiallyusingRSIonthewebsite.However,theystressedthehighvalueofthesekindsof
contextual,easy-to-interprettoolsthatareaccessibletopeoplenotspecializedindata/weather
(RoderickMcInnis,Sears,pers.comm.2014)
5.3.Sears
Box1:Textboxretrievedfrom2014NCDC*ProductsandServiceMarketAnalysis(Adams,2014).NCDC*:NCEI’s
predecessor
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5.4. U.S.AutoPartsNetworkInc.
U.S.AutoPartsNetworkInc.isaleadingonlineretailerofaftermarket,replacementautopartsselling
performanceengineandcollisionautoparts.Asignificantportionofthebusinessisthesaleofcollision
autopartswhichsellparticularlywellduringwintermonthswhenthereisiceandsnowontheroads
andahighernumberofaccidents.
U.S.AutoPartsNetworkInc.begansearchingforreliableweatherdataastheyrecognizethatwinter
weathereventsarecorrelatedwiththeirsalesperformance.ThecompanycameacrossRSIinearly2017
andisbeginningtousethisdatasourcetohelpunderstandsalesperformance.Theywillaggregatetheir
salesusingthesameRSIgeographiesandanalyzesalesperformancewithrespecttoRSIscoresover
time.TheinclusionofthepopulationcomponentinRSIwillmakeitespeciallyrelevantforthisanalysis
asitcancontextualizedemandwithinpopulation.
U.S.AutoPartsNetworkInc.willusethisdataforexplainingsalesperformanceYoYandproviding
contexttoquarterlyreporting.“Thedatawillbehelpfulinunderstandingthecorrelationbetweenmajor
winterweathereventstooursales,andexplainingbigvariancesinsalesyear-over-yearduetoextent
andtimingofwinterweatherevents,”explainsSarahGustafsonofU.S.AutoPartsNetworkInc.Having
accesstomeaningfulandreliableweatherdatainaneasy-to-useformatwillbeaveryusefulresource
forthecompany(SarahGustafson,personalcommunication,February8,2017).
5.5. InvestmentBankX
InvestmentBankXprovidesfinancialservicestoarangeofclientsincludingfinancialinstitutions,
corporations,governments,andindividuals.Thefirm’sresearchdivisionproducesreportsthatareused
byfinancialinstitutions,hedgefundsandmutualfundstounderstandthecurrentstateandtrajectoryof
theU.S.economy.Thesereportsdiscusswhethereconomicsdataisweakinagivenmonthduetoa
slowingeconomy,orwhetherthereareexternalfactorsthatarecausingatemporarydipinthe
economy.Asretailtradeandmanufacturingareimportantindicatorsofeconomicwell-being,analysts
oftenlookattheseindustriesdatatoinformtheirmacroeconomicanalysis.
Onaverage,severaltimesamonth,weatherfeaturesasaprominentfactorinthesereports.Weather
caninfluenceeconomicactivityandeconomicdataindramaticways,particularlyinthewinter.For
example,asnowstormorharshwintercanseverelydisrupteconomicactivityintheformoflostwages
forhourlyemployees,lossofconsumerspendingatrestaurantsandretailers,andcancelledtravelplans.
20|Page
Oneestimateofthe2014‘polarvortex’claimsthattheeconomysuffered$5billioninlossesfromlost
wages,airlinecancellations,anddamagedwaterpipes(“CostoftheCold”,2014).However,the
economytendstobouncebackfollowingwinterstormeventsandtheeconomicsetbacksareusually
temporary.Theavailabilityofdatatoquantify,track,andestimatetheimpactsofweatherisimportant
tounderstandthestrengthoftheeconomy.
AnalystsattheresearchdivisionarefrequentusersoftheRSIandNESIS.Duringwintermonths,analysts
monitoranddownloadtheRSIandNESISindicesandcomparethemagainstdifferentmeasuresof
regionaleconomicactivities,includingretailandmanufacturing.Theseindicestendtobestatistically
significantinexplainingdeviationsfromseasonnormsandareveryhelpfulinpredictingandexplaining
winterstormdisruptionstoeconomicactivity.Ananalystfromtheresearchdivisionfindsthesedata
veryvaluablenotingthatwhilethereisalotofreadilyavailabledataontemperatureandprecipitation
onanationalandlocalscale,snowfallandwinterstormdataisdifficulttocomeby.One
recommendationofferedbytheanalystisthattheRSIbeupdatedmorefrequentlyasitcansometimes
takesacoupleweeksfollowingamajorstormbeforeitisaddedtotheRSI.Thedivisionalsoreliesonthe
productsintheClimateMonitoringsuite,particularlythemonthlyStateoftheClimatesummaries,to
identifyanyunusualweatheroccurrencesinpriormonthsthatmayhaveaffectedtheeconomy.
Thereportshelpreadersunderstandhoweconomicactivityandeconomicdataarebeinginfluencedby
severeweather.TheycanhelppredictquarterlyGDP,informhowtoinvestoradjustfiscalandmonetary
policygoals,andinformunderstandingoftheeconomicoutlook.NCEI’sdataisanimportantsourceof
informationinthesereports,whenwinterweatheractivityhasaninfluenceontheeconomy’s
performance(anonymous,personalcommunication,Feb2,2017).
5.6. GuggenheimPartners(RSI)
GuggenheimPartnersisaglobalinvestmentandadvisoryfinancialservicesfirmthatprovides
investmentbanking,capitalmarketservices,investmentmanagement,investmentadvisory,and
insuranceservicestoabroadclientele.TheMacroeconomicsResearchteamreleasesperiodic
publicationsthatfocusontheeconomy,andcovertopicsthatarerelevanttotheperformanceof
financialmarkets.Inthewinterof2014severalsnowstormsimpactedeconomicgrowth,primarilyin
theNortheast.GuggenheimPartnersanalyzedsignificanttemperaturedeviationsfromtheaverage
wintermonthusingHeatingDegreeDays(HDD)andsnowfallextremesfromRSI.Whenthesetwodata
pointscrossedacertainthresholdtheywereclassifiedasaseverewinter.Theteamcombinedseveral
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severewintersandanalyzedthepatternsofretailsalesagainstthoseconditions,andthencompared
themagainstretailingpatternsofaveragewinterweatherconditions.Theyfoundthatwhilesevere
wintersstronglyimpactretailersintheshortterm,theretendstobeaneconomicbounce-backlaterin
theyear.
Therewereconcernsatthetimethattheeconomywasheadingbackintoarecession,basedonwhat
theeconomicdatawasshowing.However,theanalysis,informedbyRSI,showedthattheimpactof
severewinterweatherwasonlycausingatemporarydipinthemarket,andthattheeconomywould
bouncebackinthefollowingquarter.Theanalysisrecommendedthatinvestorsshouldmaintainthe
coursewiththeirinvestmentdecisions.NCEI’sdatahelpsGuggenheimPartnersteaseouttheinfluence
ofweatherimpactsoneconomicactivityanddata,andcontributetotheinvestor’sguidance(MattBush,
personalcommunication,February14,2017).
22|Page
6. ConclusionRetailandmanufacturingaretwoindustrieswithhighsensitivitytoweather.Companiesthat
manufactureorsellhigh-costseasonalitemscanseedrasticreductionsinsaleswhenweatheris
unseasonal.Evencompaniesthatdonotmanufactureorsellseasonalproductscanbeimpactedby
weatherifitimpactsconsumersshoppinghabits,ortheabilityofgoodstogettomarket.Economic
lossescausedbyweathercanfurthercascadetotheequityfirmswhoinvestinthesecompanies.As
retailandmanufacturingareconsideredtopindicatorsofeconomicwell-being,whenthesetwosectors
underperformthewholeeconomyisimpacted.
Retail,manufacturing,andinvestmentfirmsrequireaccesstoarangeofdatasourcestounderstand
howexternalfactorsimpactsalesperformance.Weather,oneoftheseexternalfactors,hasbeen
acknowledgedbytheintervieweestoposeamaterialimpacttotheirbusiness.Whiletheweather
cannotbecontrolled,havingtherightdatatounderstand,quantify,andmeasureitseconomicimpacts
isanassetforinformation-drivencompanies.
ThecompaniesinterviewedinthisanalysisallrelyonNCEI’sclimateandweatherdatatounderstandthe
pastandplanforthefuture.ProductsfromtheClimateMonitoringSuiteareofparticularimportance
andinclude;ClimateataGlance,precipitation,temperature,anddroughtdata,monthlyandannual
StateoftheClimatesummaries,andtheRegionalSnowfallIndex.Retailandmanufacturersusethese
productstocreateannual,quarterly,andmonthlyreportsandalsotoinformfuturedecision-making.
Companiescancombinepastsalesdatawithclimatedatatounderstandhowtheirbusinessesperform
relativetocertainweatherconditions.Theycanthenpairthisaggregatedinformationwithclimate
outlookstodecidehowmuchproducttomanufacture,orhowtostockitemsinvarioussalesregions.
Investorsalsorelyonthesedatatounderstandmacroeconomicconditionsbyanalyzingtheeffectthat
weatherishavingonanindustry-widescale.
Thisanalysishasdetailedtrajectoriesofdatausage,ratherthanone-timeapplications.Companiesare
continuingtodiscoverapplicationsforclimateandweatherdatatounderstandriskandopportunities,
andarebecomingincreasinglysophisticatedintheirusage.RetailandManufacturerscontinuetoturnto
NCEIasatrustedandauthoritativeproviderofclimateandweatherdataandinformation.
23|Page
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Amadeo,K.(2017).U.S.Manufacturing:WhatItIs,StatisticsandOutlook.TheBalance.RetrievedMarch
3from,<https://www.thebalance.com/u-s-manufacturing-what-it-is-statistics-and-outlook-3305575>.
“AtaGlance”(2017).GoldmanSachs.Retrievedfromhttp://www.goldmansachs.com/who-we-are/at-a-
glance/index.html
“Costofthecold:‘polarvortex’spellcostUSeconomy$5bn”.(2014,January9).TheGuardian.RetrievedMarch3from,<https://www.theguardian.com/world/2014/jan/09/polar-vortex-cost-us-economy-5bn>
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inc.com/company.cfm?page=foot-locker>.
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Reichgott,K.(2015).“WinterisComing”.USEconomicsAnalyst,GoldmanSachs:15,(48).
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building-everything-you-need-to-know.
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<https://www.ncdc.noaa.gov/climate-monitoring/>.
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Information.(2017b).StateoftheClimate:NationalOverviewforJanuary2017.RetrievedonFebruary
17,2017from,<http://www.ncdc.noaa.gov/sotc/national/201701>.
NOAANCEI:NationalOceanicandAtmosphericAdministration’sNationalCentersforEnvironmental
Information.(2017c).StateoftheClimate:SynopticDiscussionforJanuary2017’.RetrievedFebruary17,
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Appendix1:FirmsandpersonnelInterviewed
Interviewsconductedbyand/orinperson.
Retailers
● CompanyX,anonymous,1/12/2017
● FootLockerInc.,anonymous,3/8/2017
● Conagra,anonymous,2/24/2017
● USAutopartsNetwork,SarahGustafson,2/8/2017
Manufacturers
● Silvercote,RobertTiffin,2/7/2017
● KohlerEngines,ScottSmith,2/10/2017
● HondaPowerEquipment,WarrenReid,2/20/2017
FinanceandEquityFirms
● InvestmentBankX,anonymous,2/16/2017
● AnonymousFinancialAnalyst,2/16/2017
● RidgemontEquityPartners,SethGreene,2/13/2017
● GuggenheimPartners,MattBush,2/14/2017
NOAA:
● NOAANCEI:DekeArdnt,12/20/2016
● NOAANCEI:JakeCrouch,1/20/2017
● NOAANCEI:MikeSquires,2/10/2017
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Appendix2:Industrysub-sectorsRetailtradesectorincludesthefollowingsub-sectors:
● MotorVehicleandPartsDealers
● FurnitureandHomeFurnishingStores
● ElectronicsandApplianceStores
● BuildingMaterialandGardenEquipmentandSuppliesDealers
● FoodandBeverageStores
● HealthandPersonalCareStores
● GasolineStations
● ClothingandClothingAccessoriesStores
● SportingGoods,Hobby,BookandMusicStores
● GeneralMerchandiseStores
● MiscellaneousStoreRetailers
● NonstoreRetailers(U.S.BLS,2017)
Manufacturingsectorincludesthefollowingsub-sectors:
● Durablegoods:
o woodproducts,
o nonmetallicmineralproducts,
o primarymetals,
o fabricatedmetalproducts,
o machinery,
o computerandelectronicproducts,
o electricalequipment,
o appliancesandcomponents,
o motorvehicles,bodiesandtrailers,andparts,
o othertransportationequipment,
o furnitureandrelatedproducts,
o miscellaneousmanufacturing
● Nondurablegoods:
o foodandbeverageandtobaccoproducts,
o textilemillsandtextileproductmills,
o apparelandleatherandalliedproducts,
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o paperproducts,
o printingandrelatedsupportactivities,
o petroleumandcoalproducts,
o chemicalproducts,
o plasticsandrubberproducts(U.SBEA,2016)
