A Way of Managing Weather Risks Considering Apparel Consumer Behaviors

Abstract:     
We consider weather risks arising from unexpected variability of weather conditions faced by clothing industry. Weather would influence much on the demand of clothes. Also clothes are purchased according to the taste as well as the necessity of consumers. Hence, consumers’ buying activity exerts greater influence on the sales. In this paper we investigate how consumers react to changes in weather. And then, we see how such reactions translate into different buying behaviors and how such consumers’ behavioral changes are to be quantified in companies’ sales. Finally, in consideration of consumers’ behaviors such as asymmetric consumer behavior, short term memory, and avoidance of regret, we introduce a simple demand prediction model and apply it into a news-boy model to calculate an optimal level of demand that minimizes costs. This paper shows that if apparel companies actively conduct research on consumer behaviors they will be able to minimize costs from weather risks.

Number of Pages in PDF File: 23

Keywords: Clothing Industry, Weather Risk, Customer Behavior, Risk Management, News Boy Model, Optimal Demand

JEL Classification: G22, N25

working papers series