The $1 Billion Blizzard?

The consequences of the blizzard that ravaged the East Coast earlier this week are beginning to be better understood. One estimate puts the cost to airlines at $150 million. It likely cost cities digging out of the snow even more than that. Now we've also got an estimate of the cost to retailers: $1 billion. That giant number makes for a pretty good headline, but is it accurate?

Let's go straight to the source. This estimate was tabulated by retail traffic monitoring firm ShopperTrak. Its press release says:

Preliminary GAFO retail sales estimates for Dec. 26 and 27 combined are roughly $10 billion. Assuming a conservative 10 percent sales impact nationally for the blizzard, roughly $1 billion of retail spending was postponed during the two day period.

It may sound like ShopperTrak is painting in broad strokes here, but the 10% estimate makes sense, considering the hard data the firm provides. It found that foot traffic was down 6.1% on Dec. 26th and 42.9% on Dec. 27th in the Northeast compared to a year earlier. That brought down total U.S. foot traffic for the two days between 11.2% and 13.9%. Of course, not all foot traffic translates into sales, and other regions might have outspent the Northeast anyway. But the estimate doesn't seem too outlandish.

Those two days are very important to the retail industry, as post-Christmas sales are usually significant. Consumers have gift cards and Christmas money to spend. They also have gifts to return or exchange, which often results in additional planned or impulse sales. But ShopperTrak founder Bill Martin explains that the estimate above isn't final:

"And at this point the prospect of momentarily pausing a potential $1 billion in sales has the collective industry holding its breath," Mr. Martin said. "While we do think there will be some retail strength later this week and into the weekend as folks begin to dig out, it will be interesting to see if levels recover in time to boost December sales and the overall holiday shopping season."

If you think about it, most of the shopping that would have occurred still will -- it will just be delayed. Let's take gift cards out of the equation, since any that are store-specific should already be counted as sales. You can do the same for returns, these consumers will swap a credit for other merchandise, rather than providing a retailer with a truly new sale. That leaves the sales that would have resulted by purchases with Christmas money.

Purchases made with cash gifts could be a significant loss to sales. The longer you have cash on hand, the more likely you are to spend it. So this money could be used for more practical purchases like groceries and gasoline if consumers wait too long to make the trip to a retailer to splurge instead.

As for those gift cards and exchanges, they'll still require trips to the mall or other retail shops -- just at a later date. But there still could be some additional sales lost in these cases. There may be an intangible urge to shop more than usual right after Christmas produced by what can presumably be blamed on the holiday spirit. So some impulse purchases that would have occurred in conjunction with merchandise exchanges and gift card usage might be lost as well.

Of course, this is all qualitative, and it would be very difficult to make any of this quantitative, because so many rough estimates and assumptions would have to be used. But it's pretty clear that most purchases that weren't made due to the blizzard will just be made a little later instead. So retailers will certainly end up losing some sales due to the blizzard, but probably not nearly $1 billion worth.