If you're wondering why stores seem to be slashing prices earlier and harder than in past holiday shopping seasons, here's one big reason: Many of them simply ordered too much stuff. And they don't want to get stuck with it in January.
"It looks bad-people are definitely over-inventoried," said John Kernan, a retail industry analyst at Cowen & Co. "Sales are growing dramatically slower than inventories for a lot of retailers."
Sales growth has slowed largely because job growth has weakened and consumer confidence began heading south after an outbreak of congressional infighting shutdown the government in October.
That's not what forecasters were expecting earlier this year when store buyers were placing their bets on the holiday shopping season, according to Jeff Edelman, a retail industry consultant with McGladrey.
"When they ordered their holiday merchandise six months ago, everybody was a lot more upbeat than they are today," he said.
The current inventory backup stretches across the entire economy, which grew at a 2.8 percent annual rate in the three months ended in September, according to Commerce Department figures. But 0.8 percent of that growth came from inventory buildup-a worrying sign that growth will slow in the current quarter as companies scale back production until the backlog in warehouses and store shelves is cleared.
(Read more: App economy to get a big boost this holiday season )
For retailers, the scramble to unload too much inventory has been intensified by the calendar this year-which offers six fewer shopping days between Thanksgiving and the end of the year.
That prompted retailers to kick off holiday promotions weeks earlier than usual.
For the first time in memory, retailers launched holiday ad campaigns featuring laughing Santas and snow-covered Christmas trees weeks before Thanksgiving promotions. Kmart began running holiday ads in September. They didn't wait to cut prices either.
For consumers, the retail industry's overstock headache is creating some epic bargains.
Wal-Mart (WMT) began cutting prices in September, and has been relentlessly pressuring competitors to match them. Toys R Us that month said it would match any competitors' price cuts and offered $100 to loyal customers who bought toys before Oct. 31.
For Black Friday, Target (TGT) is offering deals that include 55 percent off the price of some Nikon digital cameras and 60 percent off Nerf Hail-Fire Blasters. At J.C. Penney, (JCP) you can pick up a Cindy Crawford duvet cover for half price or some Everyday white dinnerware for 60 percent off.
As holiday sales projections began weakening earlier this year, some retailers cut back on shipments. But canceling orders late in the game can still leave a retailer with too much slow-moving merchandise.
"There might have been some product that you needed and you were low but the number crunchers say 'We have to stay within a certain level of inventory,'" said Edelman. "You may be where you want in total inventory, but you might have too little of the good stuff and too much of the bad stuff."
The inventory backup is hitting some product segments harder than others.
"Apparel in general is just massively over-inventoried and you're going to see big promotions through Black Friday and through the holidays," said Kernan. "You've got to get rid of inventory fast. Nobody wants to be sitting on carryover inventory into the new year, so you're going to be seeing gangbuster promotions through Christmas."
Those promotions also vary by product category-depending on how durable demand for an item will be after the last gifts are unwrapped. Demand for TVs holds up better into the new year than winter scarves.
"If Best Buy (BBY) has too much inventory of a certain sized TV, they just won't replenish it that much in the first quarter," said Edelman. "But if you talking about the newest, hottest game or console, that item has a timeliness and obsolescence factor because anyone who wanted to buy that as a gift has already bought it."
(Read more: Black Friday shoppers beware-the 12 scams of Christmas )
Promotions are also expected to vary widely from one store to the next, depending on how badly overstocked they are.
Abercrombie & Fitch (ANF) is awash in destroyed skinny jeans and quilted warrior parkas, according to Kernan, which may help explain why you can buy anything in the store for 40 percent off. This year, A&F's inventories are running 25 percent ahead of sales compared with last year, according to Kernan's estimates. Among the companies he follows, inventory growth is also outpacing sales at Men's Wearhouse (MW), Guess (GES), Gap (GPS), American Eagle Outfitters (AEO), TJX (TJX) andAeropostale, (ARO) he estimates.
On the other hand, PVH (PVH)-owner of the Calvin Klein, Tommy Hilfiger and IZOD brands, among others-is seeing sales growth outpace inventories by about 22 percent, according to Kernan's spreadsheet. VF (VFC)-makers of Lee and Wrangler jeans, Timberland, North Face, Nautica and JanSport-is also seeing sales grow faster than inventories, he said.
While price cutting is widespread, you won't find the same deep discounts on all brands or items.
That's because some vendors agree to make up any profit shortfall a store sees from deep discounts on an item, based on a pre-negotiated profit margin for that item. If the store's profit falls below that level, the vendor has to write a check back to the store-known as a markdown allowance-to cover some or all of the shortfall.
Analysts say they expect some vendors to be writing bigger checks than usual this year to cover the deep discounting.
(Read more: New American export: Black Friday )
Other brands won't play that game-which is why stores won't cut prices of those goods as aggressively. If they do, the store eats the entire profit hit.
"That why certain items are excluded," said Edelman. "Those manufacturers feel their brand is strong enough that they don't need that discount to sell the product and they're not willing to pay the retailer to move it."
Consumers' gain from price cutting will likely become retailer pain when it comes time to report fourth-quarter earnings early next year. While the profit squeeze from deep discounts is expected to be widespread, larger retail chains-with a wider product mix, broader distribution chain and bigger balance sheet-may be better able to weather the cost of clearing a glut of goods, say analysts.
"The bigger guys have whole departments to analyze the data and try to get as close as they can to demand," said Barry Hochfelder, editor of Supply & Demand Chain Executive, a trade publication. "And if they make a mistake, it's not going to hurt them quite as much as the little guys."
-By CNBC's John W. Schoen. Follow him on Twittter @johnwschoen.
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