Stores risk having to discount excess inventory if shoppers pull back on spending
Retailers are sitting on a pile of goods. Now the question is, will the U.S. holiday shopper bite?
From Ralph Lauren to Levi Strauss and American Eagle Outfitters, retailers have bulked up their inventory, an intentional move to get goods before import tariffs went into effect. The risk heading into the crucial holiday shopping season is that inflation-wary shoppers won’t spend as much or will buy fewer items because prices are higher. For some retailers, this could mean deep discounting to work through excess inventory, which would ultimately hit margins.
As companies start to report on this year’s third quarter, analysts are looking for signs of trouble in the form of inventory growth that is outpacing sales growth. For some companies, this is already happening. Lululemon Athletica’s inventory was up 21% for the three months ended Aug. 3 compared with a year earlier, primarily because of higher tariff rates and foreign exchange, executives said last month. Units were up around 13%. The athletic apparel brand expects sales growth between 3% and 4% in its next quarter.
SHARE YOUR THOUGHTS
Will shoppers show up and spend this holiday season or will brands be left with excess goods? Join the conversation below.
At Ralph Lauren, net inventory was up 18% for the three months ended June 28 compared with a year earlier, which Chief Financial Officer Justin Picicci described as high. Sales were up 14% for the quarter. Excluding foreign-currency impacts and early imports to mitigate tariff costs, inventory was up around 7%, he said. Tariff-related actions accounted for roughly 6 percentage points of the net inventory level.
The decision to stockpile some goods wasn’t made lightly, particularly in the current consumer environment, said Picicci. “Nothing can derail a brand elevation journey like too much inventory,” he said.
Inventory for apparel brands was up an average of 6.2% in the second quarter of 2025 compared with a year earlier, according to a review of companies by research firm Telsey Advisory Group. Inventory was also up in other categories: by 4.8% for footwear companies, 11.5% at discount chains, and 8.4% in specialty apparel businesses, according to the firm, which looked at data from FactSet.
Retailers are familiar with inventory surpluses. Coming out of the Covid-19 pandemic, many stockpiled everything from electronics to kitchen appliances and casual clothes to contend with supply-chain disruptions and consumer demands. Some ended up with an inventory pileup just as shoppers pulled back their spending, leaving companies to discount goods and take a hit on their margins, analysts said.
So far, a big difference now is that shoppers’ spending has held up well in recent months, with retail sales increasing at a solid clip in July and August. But a summertime hiring slowdown has raised worries about the health of the U.S. labor market. Inflation also remains higher than the Federal Reserve wants, and tariffs are expected to push some prices higher.
“The big question is whether spending will continue at the same pace when the prices of products across most categories go up, which is in the process of being sorted out right now,” said Rick Patel, a managing director of equity research at Raymond James. Across footwear, apparel and accessories, Patel predicts mid-single-digit price increases this fall, with the potential for further increases in early 2026. Inventory sitting in warehouses ties up capital and if demand doesn’t shape up as planned, having to discount hurts margins, he said.
Consumers surveyed by PricewaterhouseCoopers said they expect their holiday spending this year to decline on average by 5% compared with last year, the first notable drop since 2020. Eighty-four percent of consumers expect to cut back in the next six months, the firm said.
Finance chiefs have planned carefully to balance inventory strategies with how consumers might spend in the next few months.
A person tries on shoes at an Academy Sports & Outdoors store. Photo: Dani Fresh/Associated Press
Academy Sports & Outdoors advanced around $100 million in goods in the first half of the year, with inventory in the three months ended Aug. 2 up roughly 16% compared with a year earlier. “This was a big decision for us,” said finance chief Carl Ford. It means tying up capital on items that are sitting in distribution centers rather than putting it to use in other areas of the business, but the savings from bringing the goods in ahead of tariffs outweigh those costs, he said.
When deciding what to bring in early, Academy looked for items with low markdown liability, or items that don’t go out of season, Ford said. “It’s weights; it’s bicycles,” he offered as examples. “People are going to lift weights in the fall just like they did in the spring. People are going to ride bicycles.”
Ralph Lauren dress shirts and neckties. Photo: Bing Guan/Bloomberg News
Ralph Lauren took a similar approach. Products arriving earlier than normal are so-called core items, such as oxford shirts, polo tops and sweaters, rather than seasonal items, CFO Picicci said. These are items that, if overall consumer demand takes a hit in the remainder of the year, can be sold next year, and they are never discounted, he said.
“If it was fashion, I wouldn’t have pulled it forward,” he said. “The juice wouldn’t have been worth the squeeze.”
Loading up on evergreen goods isn’t without balance-sheet impacts, primarily the costs to hold it in warehouses, analysts said. But it is less of a risk than stockpiling season-specific or trendy items.
“If you know these things are going to sell, you don’t mind getting them ahead of time and just having them sit in a warehouse for a little extra,” said David Bellinger, a senior analyst at Mizuho Financial Group. “You know you’ll sell them eventually.”
Write to Jennifer Williams at jennifer.williams@wsj.com