No pot of gold at the end of the rainbow: fashion shops sunk by volatile weather

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Fashion retailers are set to record a dismal summer as the unpredictable weather takes its toll on sales.

Fashion retailers are set to record a dismal summer as the unpredictable weather takes its toll on sales.

Climate plays a crucial role in retail, both in determining what people buy and whether or not they go to the shops. But in recent weeks the weather has taken in soaring temperatures and torrential downpours in rapid succession, and research by property consultants Donaldsons reveals fashion retailers have been worst hit.

James Brown, head of retail research at the firm, said: "We all talk about the weather a lot but it really does affect fashion retailers. It it's too cold when it's supposed to be hot, or vice- versa, it's going to affect sales. And this summer has been particularly bad."

Mr Brown said the retailers likely to be worst affected by bad weather are those with inflexible supply chains that do not allow them to react quickly.

This means Marks & Spencer could be particularly badly hit. The group, under the leadership of the newly installed chief executive Stuart Rose, recently saw off potential buyer Philip Green by promising to overhaul the chain, boost sales and profits, and increase the share price.

However, M&S has long been viewed as having an unwieldy and inefficient supply chain; it was one of the areas Mr Rose vowed to tackle as part of his bid defence. M&S has already reported a fall in sales for the 14 weeks to 10 July, down on a like-for-like basis by 2.8 per cent.

Said Mr Brown: "Some of the clothing retailers are less effective than others in trying to change the supply chain to match the changing weather." He pointed to Inditex, the Spanish owner of Zara which manufactures its own clothing, as an example of a retailer able to control supply.

But he added: "For others, the stuff comes across from China, it takes months to get to the stores and they cannot react as quickly. Department stores are able in bad times to rely on other products that will sell. Fashion stores don't always have that."

A spokeswoman for M&S refused to discuss current trading but remained confident that, in the long term, the group's turnaround would be a success. "This isn't going to happen in a quarter - you are not going to see significant change until next autumn. But clearly we're working to get the business back on track."

Mr Brown also warned that the emergence of a late warm spell would heap even more pressure on the fashion sector.

The seasonal turnaround of clothing is rapid, and stores already have autumn items in stock. "If we have a late summer and they cannot shift the autumn stock, their margins will be hit and that is not going to be good news for the fashion sector," said Mr Brown.

Only last week, shares in the sports and leisure retailer JJB Sports crashed to a year low after the company warned that final profits could be 20 per cent less than forecast as sales had started to decline. Underlying sales dipped 1.3 per cent in the 23 weeks to 4 July.

Other fashion retailers to show a bad start to the summer include Bon Marche and the Austin Reed-owned Country Casuals.

Blacks Leisure, among others, fared better during the spring and early summer period. Blacks reported underling growth of 4.2 per cent in the 19 weeks to 10 July. However, market speculation is growing that the group's sales have suffered since then because of the changeable weather.

Last week also saw the release of Government figures showing how high-street sales had declined for the first time in 14 months in July.

Mr Brown said retailers could only protect themselves by improving their supply chain and making better use of weather- forecasting tools. "It's the guy who stands outside Wimbledon selling plastic macs who does phenomenally well because he's had the foresight to work out what the weather is going to do."

Sun shines on futures as climate change prompts companies to hedge their bets

The unpredictable summer months are shaping up to be a boom time for the global weather futures markets.

The Chicago Mercantile Exchange, one of the world's biggest markets for buying and selling weather derivatives, has reported a surge in business as companies try to hedge against the unusual climatic patterns experienced across the globe in recent months.

According to data from the CME, more than 25,000 weather contracts worth over $580m (£319m) were traded in the first six months of 2004. That represents a 170 per cent surge on the same period last year.

In addition, the CME said that worldwide demand for weather risk-management products was growing, up 10 per cent in the 12-month period to March 2004.

Felix Carabello, head of weather derivatives at the CME, said of the summer months: "There's been more trading activity, and volume numbers are a lot higher. It has been quite cold, unusually, in the US - luckily for us. The market is still in its growth cycle but its starting to show characteristics of a dynamic marketplace."

The CME covers weather patterns in the US, Europe and Asia. Typical customers tend to be reinsurers, energy companies and funds, which buy a "contract" - a financial tool - as a form of insurance.

Energy firms, for example, use weather contracts to protect themselves against unseasonably warm winter. The companies ramp up production as winter approaches, in anticipation of cold weather and higher demand, and could be caught out financially by a warmer-than-expected season.

However, major or one-off events such as Hurricane Charley in Florida and the flash flooding seen in Cornwall are not covered as the weather contracts are based solely on temperature.

The London International Financial Futures and Options Exchange suspended trading in weather derivatives last year because of a lack of interest.