Seasonality and high variability in sales
typical of the outdoor apparel market, Columbia consumers' seasonal trends typically influence customers' purchasing decisions. As temperatures around the world drop during the fall and winter seasons, the demand for Columbia's products increases, especially in the outerwear product category. Historically, outerwear is the highest selling product category contributing to the majority of Columbia's net sales. On average from 2008 to 2010, outerwear accounted for about 38 percent of Columbia's sales. Outerwear, by design, protects those wearing it from harsh, cold, and inclement weather conditions commonly encountered in the fall and winter seasons. Due to the nature of the product and market volatility, the majority of outerwear sales take place during the fall and winter months.
In 2011, approximately 65 percent of our net sales and all of our profitability were realized in the second half of the year, illustrating our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.
In terms of revenues, Columbia typically finishes the fiscal year strong and realizes most of its sales in its third and fourth quarters. However, because operating expenses occur throughout the year, sales skewed toward the fall and winter season create forecasting challenges. Columbia must determine if sales during the colder seasons will generate enough revenue to reach profit goals and cover operating costs throughout each year.
Because Columbia relies intensely on above average sales during the fall and winter seasons, historically, it faces periods of weaker growth after unseasonably warm winters. Weather phenomena, such as dramatic climate changes and the steadily increasing number of what appear to be unseasonably warm winters across the nation, are some of the most unpredictable challenges facing Columbia. An unseasonably warm winter not only results in a drop of demand for Columbia's products, but also creates hardships felt across the entire organization. For instance, in the past, unseasonably warm winters have created (1) excess inventory, (2) decisions to reduce the prices of the firm's products, (3) slow sales, (4) a drop in orders from retailers, (5) a reduction in workforce, and (6) dramatic decreases in future demand. According to the US Environmental Protection Agency,
....the average surface temperature of the Earth is likely to increase by 2 to 11.5 F by the end of the 21st century... the average rate of warming over each inhabited continent is very likely to be at least twice as large as experienced during the 20th century. The warming will differ by season, with winters warming more than summers in most areas.
Moving forward, the changing weather and all the issues it creates for Columbia will be an ongoing challenge for the organization and its leaders.
Columbia's sales skewing toward the fall and winter seasons also proves its product lines mostly appeal to consumers living in locations that traditionally experience colder seasons. This is a challenge because, due to the recreation and leisure connotation of Columbia's product lines, sales and consumer demand greatly depend on "consumers" discretionary spending patterns. Similar to many other organizations, Columbia has witnessed a decrease in consumer discretionary spending attributable to the challenging economy that characterized many markets throughout the world from roughly 2007 through at least 2012. Evidence showed that during this time, consumers spent less and aggressively hunted for better bargains by abandoning brand loyalty behaviors and switching to private labels or store brands for lower prices and special offers. Specifically, these trends present Columbia with key issues because the active lifestyle apparel market is one of the few growing sectors in retail and participation in outdoor activities is also on the rise. From 2009 to 2010 for example, participation in the United States in outdoor activities such as triathlons, white water kayaking, and mountain climbing - were up 64 percent, 35 percent, and 20 percent respectively. Growth in the outdoor and active wear markets coupled with Columbia product lines' one-dimensional appeal to consumers suggest the organization isn't reaching its full potential. Columbia's leaders must examine its position in the market and industry and move forward to increase market share in spite of economically tough times.