Holiday inventory levels are the latest set of tea leaves that are raising concern about how retailers are positioned going into the last quarter of the year and the strength of consumer spending. Data from the Logistics Management Index (LMI) , a monthly economic indicator based on a survey of supply chain professionals about the state of inventory, warehousing, and transportation, shows different holiday inventory strategies between large and small retailers. In the latest LMI for August, the report highlighted Walmart’s plans to rationalize its product mix, bringing in higher volumes for sure-sellers and taking fewer risks with goods that consumers might not buy in bulk. “This allows them to place orders earlier and also achieve quantity discounts,” the report said. “While Walmart and their supply chain partners have absorbed some of the price increases associated with tariffs, that is not a sustainable strategy. This inventory strategy shift may help them to avoid increasing prices for consumers too significantly.” Large/Small divide The LMI report showed smaller firms largely unable to compete with larger ones and less able to offer competitive prices, with many of their goods arriving after higher tariffs were announced April 2. “This is likely reflected in the higher Inventory Cost expansion reported by smaller firms, which at 83.7 is statistically significantly higher than the (still high) 72.2 reported by larger firms,” the report noted. Shares in Dollar Tree , for example, fell after discounter narrowed its full-year guidance , citing concerns over higher-cost, lower-margin product purchases, including food. Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, told CNBC that the quote from a recent Petco Health & Wellness earnings call that stood out related to the impact of tariffs on future inventory: “So, we had almost no tariff impact in Q2,” Petco management said. “There was some, but let’s call it rounding. As we go to Q3, it becomes meaningful and then it becomes even much more meaningful in the fourth quarter.” Inflation brewing Economists warn inflation continues to brew in the warehouse with holiday items still in storage. “This means basically the products being sold now are goods that were procured with the tariffs, as the shelves are now empty of stuff bought pre-tariffs,” said Boockvar. Michael Aldwell, executive vice president of sea logistics at Kuehne+Nagel , a Swiss global logistics and transportation company, said the demand it’s seen over the last several months has been erratic. Demand is not fitting regular seasonal patterns “as customers are adjusting their supply chains and order patterns,” Aldwell told CNBC. “Demand has been softer than normal patterns as some businesses are reducing inventory either because of tariff-based economic uncertainties or because they are drawing on stock brought in earlier in the year.” Spending pullback The CNBC Supply Chain survey forecast smaller holiday inventories and less assortment after the U.S. instituted the present 34% tariffs on Chinese goods in May. “As the fall season begins, we are seeing that lower-income brackets are pulling back on their spending and even middle- and upper-middle income shoppers are trading down,” said Noah Hoffman, vice president of North American Surface Transportation for CH Robinson Worldwide . “They are changing where they shop, the brands they choose and the number of purchases they make. This is happening just as retailers are telling us that they are running out of options to avoid passing on the cost of tariffs to consumers.” Logistics managers explain that inventory serves as a buffer to mitigate tariffs. The wave of holiday inventory brought onshore in the spring and early summer will start to leave warehouses in September and October. That holiday inventory will then be stocked on store shelves in late October and early November. Replenishment for holiday items at the stores would happen again in mid-December. Josh Allen, COO of ITS Logistics, said that based on client communications, the lighter and earlier peak season was anticipated. “We are seeing retailers zeroing in on products that sell quickly and move off the shelves and slimming down on SKU’s that aren’t a guaranteed cash flow,” he told CNBC. Core colors and assortments Allen said some apparel retailers are focusing on core colors and assortments that can be easily replenished or shifted across stores, instead of betting big on fringe seasonal styles. “In consumables, it’s about stocking core pack sizes and flavors that churn every week, while trimming down the experimental launches that eat up warehouse space,” said Allen. Alan Baer, CEO of OL USA , a bonded non-vessel operating common carrier, warned that market uneasiness persists. “We have some holiday retailers who are feeling positive about the outlook, while others have held back since April,” Baer said. “They do not want to get caught with seasonal merchandise they would need to steeply discount to clear their inventory.” LMI data has shown larger firms and downstream retailers (ranging from traditional brick-and-mortar retailers to e-commerce and grocery stores) are reporting narrower inventories, more capacity and lower price expansion to avoid higher costs. Lack of ocean cargo Another telltale sign of a softer consumer is the lack of ocean cargo that traditionally rushes into the United States in late August out of China. Traditionally, U.S. companies bring in last-minute holiday orders at this time of year so the product arrives before “Golden Week” in China (October 1-7). During “Golden Week”, manufacturing and transportation to move containers to the ports slows when Chinese workers are off to travel and celebrate. In a note to clients, Honour Lane Shipping of Hong Kong warned, “….. the seasonal volume surge may not happen this year, not only because the front-loading is mostly complete, but because the volatile tariff policies lead to soft demand and excess inventory in the U.S.” The latest Logistics Management Index report also noted the lack of freight orders. “One potential signal that imports will slow down through the rest of the year is that Chinese factory output slowed in July. This comes despite their exports surging by 7.2% in the same month,” the report said. This lack of freight has led to lower ocean freight prices, and ocean carriers have disclosed ocean freight booking volumes to the U.S. are down 20% over the past six weeks. The vessel tracking service managed by the Marine Exchange of Southern California and Coast Guard shows 175 container ships arrived in August, one below “normal”. That put the ports of Los Angeles and Long Beach a total of 34 container ship arrivals below normal in 2025. Looking ahead to future container ship arrivals, Captain J. Kipling Louttit, executive director of the Marine Exchange, said there is “a pretty solid leading indicator” of a dip in container ship arrivals over the next two weeks.
