What Is a Seasonal Industry?
A seasonal industry refers to a group of companies related by their common business activities that earn the majority of their income during a fairly small number of weeks or months each calendar year. The annual business cycle for these firms is fairly predictable. Seasonal industries have only one or two high points during which customer activity ramps significantly. The rest of the year tends to be either lackluster or unprofitable.
For instance, companies that earn the bulk of their business selling Halloween costumes and accessories or Christmas trees and ornaments would be categorized as belonging to a seasonal industry.
A seasonal industry is different than a cyclical industry. The former experiences predictable changes in business patterns each year, while the latter sees such changes spread out over multiple years and is impacted by periods of economic expansion and contraction.
- A seasonal industry refers to a group of companies that earn the majority of their income during a fairly small number of weeks or months each calendar year.
- These are not cyclical industries, which have predictable business patterns each year.
- Seasonal industries must make enough money during their seasonal peaks to last the business owners the entire year.
Understanding Seasonal Industries
Seasonal industries typically ebb and flow along with the annual sales cycle. They must make enough money during their seasonal peaks to last the business owners the entire year. Otherwise, these business owners need other sources of income to sustain them during the off-season. While some businesses only stay open for the busy season, such as an ice cream stand, others significantly gear down business activity the remainder of the year.
Owners of seasonal businesses tend to spend considerable time managing their cash flows, either saving enough free cash over time as a safety net or securing a line of credit to cover liquidity issues that may occur outside the busy season.
Workers in seasonal industries often work more than 40 hours a week during the high season but must take on different work the remainder of the year. Many seasonal companies, particularly retailers, traditionally do not turn a profit each year until Black Friday. They must carefully manage payroll for much of the year before they loosen up and hire seasonal workers for the holidays.
Which Industries Have Seasonal Income?
One example of a seasonal industry tied to weather is skiing. Most ski resorts only have the quantity and quality of snow necessary for skiing at certain times of the year. The ski resort, its employees, an adjacent rental and ski-equipment repair shop, and even restaurants and stores nearby that are unaffiliated with the resort all plan around this seasonality.
Some seasonal industries are dictated by nature. For example, most farming is a seasonal industry, as the growing season lasts half the year or less in many parts of North America.
Lobstering is another seasonal industry, and it’s dictated by the annual migrations of sea creatures. The Massachusetts lobstering industry completely shuts down from February 1 to April 30 to allow endangered right whales to make their way up the coastline without becoming ensnared in lobster traps.
The season typically gets off to a very slow start, then begins to hit its stride in July, when many lobsters begin to molt, after which they are typically hungry and can easily be trapped. The fall is typically the boom season, as lobsters are ensnared as they migrate toward deeper waters. The industry again slows significantly into the late fall and winter, before it shuts down the following February, and the seasonal cycle begins again.
Some other examples include:
- School-related companies
- Vacation destinations
- Tax preparations services
What Are Some Examples of Seasonal Products?
Holidays are big drivers of seasonal product sales. Christmas, Easter, Halloween, and Thanksgiving, all lead to boosts in sales for products like candy, decorations, clothing, toys, and food.
How Do You Trade with Seasonality?
The time of year can play a role in Forex trading. Specifically, if you look at how the U.S. dollar behaves against various currencies through technical analysis you can evaluate price activity indicators. When only price is examined, seasonality patterns often emerge. It's important to remember that patterns can disappear as quickly as they are identified and past performance is not necessarily an indicator of future success. But when a historical pattern repeats itself 80% or 90% of the time, it can become statistically significant for traders.
For example, one of the strongest examples of seasonality is the USD/JPY, particularly in July. In 68% of the samples, USD/JPY ended the month of July higher than where it started.