The El Nino weather phenomenon is throwing a wrench into the normal weather pattern to the dismay of retailers and sector-related exchange traded funds that depend on the seasonal sales boost.
While the East Coast is finally experiencing some winter cold, analysts argue that a spike in demand for cold-weather apparel is too little too late, reports Krystina Gustafson for CNBC.
Moreover, market watchers anticipate that spring will get off to an unusually cool start across the U.S., which could deal a greater blow to sales than a warm winter.
“Winter is coming,” Scott Bernhardt, president of Planalytics, a consulting firm that analyzes the effect of weather on consumer demand, told CNBC. “But it’s not going to be enough to make up for missing the holiday season.”
Specifically, Planalytics estimated that specialty apparel stores lost $421 million in sales due to warmer conditions between November 1 and December 19 and may have lost up to $500 million through December 26 – these estimates do not include department store sales.
Consequently, ETFs with a greater tilt toward smaller retailers have been under pressure for much of the year. For instance, the SPDR S&P Retail ETF (NYSEArca: XRT) declined 7.9% in 2015 while the PowerShares Dynamic Retail Portfolio (NYSEArca: PMR) dipped 3.5%. [Don’t be Fooled by the Season and Retail ETFs]
XRT underlying index follows a more equal-weight methodology, which includes a heavier 19.0% tilt toward micro-caps and 35.6% toward small-caps. The fund includes a 18.1% weight in specialty stores and 23.3% in apparel retail.
PMR, which follows a fundamental indexing methodology, also includes 17.9% micro-caps and 24.5% small-caps, but the fund holds a more defensive 37.6% tilt toward consumer staples.
On the other hand, the Market Vectors Retail ETF (NYSEArca: RTH), which targets the largest retailers in the space, gained 12.1% year-to-date.
Bernhardt argues that retailers are suffering from slower sales this year as major population centers in the eastern two-thirds of the U.S. are on track to post record high temperatures for the last two months of the year. Consequently, retailers will be forced to slash prices on winter goods to get rid of excess inventory.
“They’ll be practically giving it away, but they’ll clear it,” Bernhardt added. “The level of markdown that you’re going to see … we haven’t seen that in a very long time.”
Looking ahead toward the spring season, El Nino is expected to create cooler conditions across the southern third of the U.S. and more stormy conditions in the northern third.
“Combined with an early Easter, this means the start to spring buying will likely be delayed in the areas that traditionally sees the earliest start of spring,” Paul Walsh, vice president of weather strategy at The Weather Company, told CNBC. “I’m not very bullish on the weather for the start to spring.”
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Max Chen contributed to this article.