* Inventory scale-back ripples throughout supply chain
* Cautious retailers who under-ordered may scramble
* Tight credit has hurt suppliers' ability to respond
* Options include air freight, moving up January's goods
Proof of the anxiety U.S. retailers are feeling this holiday season lies in a pile of new department store orders on Gene Zuckerman's desk.
The head of sales for women's contemporary clothing brand Sledge USA proudly flips through a stack of last-minute orders from major stores such as Bloomingdale's and Dillard's (DDS) seeking hip T-shirts and hoodies to be delivered on Nov. 30, just weeks before Christmas.
The store chains are hedging a major bet they made this year by slashing inventories, sometimes as much as 25 percent, to make sure they do not get stuck with a glut of merchandise for a second consecutive year.
Stores from Saks (SKS) were forced last year to slash prices dramatically after the financial meltdown, but some analysts say they have gone too far in reducing inventory and may lose sales if consumers come out to spend.
You have department stores saying 'Help! Help! Help!' said Zuckerman, whose brand is manufactured entirely in Los Angeles. Ninety percent of all manufacturers are turning them away, saying they can't manufacture goods in five weeks.
Confusion is rife and for every expert who cites too-lean inventory levels, another says retailers need to pare back further. A recent study from consultants BDO Seidman cited 60 percent of chief financial officers saying excess inventory was the biggest risk to holiday sales. But 40 percent said too little was worse.
Since the vast majority of apparel that enters the United States is imported from Asia, retailers who have not planned well could be left in the lurch.
If you don't have it (a shipment) in motion by mid- October, forget it, said NPD Group analyst Marshal Cohen. More than half of holiday goods are already on a boat or on the docks here in the States. The remainder is either on the water or in the last stages of production.
Enter Sledge USA. The company can take a bolt of white fabric, dye and sew it and turn out highly embellished trendy T-shirts and hoodies, all ready for shipment, within six days. Brand new lines can be designed and created within six weeks.
If they (retailers) get nervous and call me at three in the morning ... I can say, 'We got it!' said Charles Alloun, the company's chief financial officer, who showed off machines at the downtown factory that imprint ink designs onto clothing and others that affix sparkling crystals and studs.
But the number of companies like this one is dwindling. The credit crisis battered an already-weak domestic garment sector and trickled all the way down the supply chain. This year, most domestic suppliers are unwilling or unable to risk owning raw goods, leaving retailers potentially in a pinch.
Who has white zippers in stock? Does the thread match? Is it in stock? All the way down the line there's no inventory, said Ilse Metchek, executive director of the California Fashion Association. It's not just, 'I hear some 50 sewing machines are lying idle, let's make it fast.' There is not the capital to make it fast.
Retailers who sell apparel that is relatively easy to make, such as screen-printed T-shirts, have more options than those dependent on labor-intensive garments made abroad.
Upscale retailers could run into more challenges because they rely on imported apparel with high design, said Janine Blain, vice president of Directives West, a trend consultancy.
In a pinch, retailers can ship goods from Asia by air, which takes five to seven days instead of a month by water, but runs the risk of being held up at customs.
Since it could cost as much as 75 cents to ship a single blouse by air, it's viable only for stores with higher margins, said Ken Wengrod of FTC Commercial Corp, a factor. That option might be cost-prohibitive for discounters such as Wal-Mart Stores (WMT) or junior brands such as Wet Seal (WTSLA), he said.
Companies from Levi Strauss to Aeropostale (ARO) have moved production closer to the United States to areas such as Mexico and Central America. Levi CEO John Anderson said the company is also carrying a safety level of inventory in its distribution centers that can get to customers within 48 hours.
Retailers can also tinker with store displays to push their remaining merchandise, or try to bring in goods for the next season earlier so what was intended for January can be sold before Christmas. Small boutiques might opt for selling goods under consignment.
The risk that new goods could end up being marked down is so great that stores that appear to be on track with sales in November won't be tempted to order more, even if inventory gets low, said Cohen.
If I've sold and made my sales, guess what? I can't do anything about it, he said. They'd rather sell less and sell it at a higher rate than sell more and have to give it away.
Meanwhile, retailers who understand the capricious nature of consumers like to be able to chase merchandise, said Blain.
Retailers don't want to place orders way, way out. They want to see what the consumer is doing, she said. It's better to chase and that's what they're doing. (Editing by Michele Gershberg and Andre Grenon)