Heavy Inventories Threaten to Squeeze Clothing Stores

Heavy Inventories Threaten to Squeeze Clothing Stores

By : Suzanne Kapner

Dec. 3, 2013 9:58 p.m. ET

It isn't just Americans who need to go on a diet after Thanksgiving. Apparel retailers need to slim down, too.

Chains including Abercrombie & Fitch Co. ANF -0.83% , Chico's FAS Inc., Gap Inc. GPS -0.51% and Victoria's Secret came into the fourth quarter with heavy inventory loads. The concern now is the retail industry's weak showing over Thanksgiving weekend will force them to take bigger markdowns that could hurt their fourth-quarter profits.

Retail spending over Thanksgiving weekend dropped for the first time in at least seven years as the blitz of deals and earlier opening hours apparently failed to pry more dollars out of the hands of budget-conscious shoppers. Paul Ziobro reports. Photo: Getty Images.

Simeon Siegel, an analyst with Nomura Equity Research, looked at the inventory carried by those and other specialty-apparel retailers at the end of the third quarter and compared it with his projections for the chains' fourth quarter sales. He found that in most cases inventory growth far outpaced sales growth. Normally, the two should be growing about the same.

"The ratios are the worst we have seen in quite a while," Mr. Siegel said

The companies each acknowledged that their inventories were rising and said the levels were appropriate.

Yet with holiday sales getting off to a slow start, positions that seemed appropriate several weeks ago may turn out to be too high. A survey commissioned by the National Retail Federation concluded that sales over Thanksgiving weekend fell to $57.4 billion from $59.1 billion a year ago—the first drop in at least seven years.

Fewer shoppers said they had bought clothing or visited apparel stores, according to the NRF survey, which polled nearly 4,500 consumers.

Marshal Cohen, the chief industry analyst for the NPD Group, said he spotted signs throughout the weekend that stores were overstocked, including goods...