On the Money

Stormy skies: Here’s how companies can plan when extreme weather is in the forecast

Beth Corsentino
Key Points
  • Weather planning is becoming a bigger part of business strategy.
  • Analysts are skeptical about the 'weather excuse's' impact on the bottom line, but a meteorologist explains why more companies are tuning in closely to forecasts.
Weathering the economy

The National Weather Service estimates damage from U.S. natural disasters cost upwards of $18 billion last year. Now more than ever, companies big and small are looking to weather forecasts for business help.

Yet forecasting itself has become a $3 billion business, with information becoming increasingly accurate and local. Forecasters sell their information to businesses, which in turn use it to determine what to stock, staffing levels, and even specifically targeted social media posts.

Paul Walsh, a business weather analyst and meteorologist told CNBC's "On The Money" recently that "weather is something...investors [and businesses] have been... talking about and complaining about for a lot of years."

In fact, investment analysts frequently use the term "The Weather Excuse," for companies that blame missed earnings expectations on the weather. However, Walsh and his team at IBM Business Solutions use data and technology to overcome that excuse — and even turn a negative into potential positive for retailers.

While still far from an exact science —forecasters often miss calls on the weather—they do have a "better ability to measure the effect of the weather on all of us, not just in terms of where we are going, but what we're buying even how we are feeling and predict those insights," Walsh said.

Smaller businesses "will have a really good sense for what a particular weather condition or a forecast means," he said, adding that retailers are becoming much more nimble.

A store like Home Depot, for example, could move shovels to stores in the path of a blizzard, or if no snow is expected, use the space for something else. Walsh said.

"We are able to ingest different types of data, weather data, historical point of sale data, social media data and also looking at local events and get a much finer grasp in terms of how the external environment is going to be shaping what people will be needing," the analyst added.

As a 20-year veteran in the weather industry, Walsh told CNBC companies can leverage the effect of weather on their businesses better than they ever have. Yet consumers also benefit by finding what they want and need on the shelves, shopping in stores that are adequately staffed, and finding appropriate markdowns.

Walsh is already looking ahead to the holiday shopping season. He's predicting colder weather around the key shopping periods of late November into December.

That's good news for clothing retailers: People are more likely to buy things like sweaters and warm coats. But when asked by CNBC if the chilly forecast included potential for increased snow, Walsh was less committal—perhaps mindful of the aftermath of this year's Winter Storm Stella, where initial dire snow forecasts for the New York area were ultimately overblown.

"I can't make that exact prediction," Walsh said. "I'm not that brave to do that."

He says to expect the weather to be "more seasonal" than we've seen in recent years.

On the Money airs on CNBC Saturday at 5:30 am ET, or check listings for air times in local markets.