Although holiday sales are expected to post modest gains this season, the same may not hold true for retailers' bottom lines.
Higher store counts and larger shops, as well as an increase in orders when the sector showed signs of recovery back in the spring, could hurt many retailers' margins as they slash prices to move product.
"There's a whole ton of people that we believe are going to be inventory heavy," said Craig Johnson, president of Customer Growth Partners.
After trimming back on square footage during and in the aftermath of the recession, Johnson cited a reversal in this trend as a key reason for a potential inventory overload. As the consumer slowly regained strength, retailers across the spectrum started upping their store counts and building larger sales floors. This was seen at small retailers, such as jewelry and accessories retailer Charming Charlie and women's apparel retailer Francesca's, as well as at bigger names, such as Michael Kors, Tory Burch and Wal-Mart, Johnson said.
Year over year, Customer Growth Partners reported a 4 percent increase in square footage among retailers.
When this growth is coupled with Johnson's forecast for a 2.9 percent holiday sales increase—the slowest since the recession—the firm is projecting retailers will also see the first holiday season decline in store productivity per square foot since the recession.
What's more, Johnson said, demand has been on a "stairstep down" since July, and retailers will start to see an impact on their margins in the closing quarter.
He noted, however, that it's important not to make a blanket judgment. Department stores and luxury retailers will likely take a bigger hit, as their orders were completed back in March and April, when consumers were coming off a cold winter and demand showed signs of recovery. On the flip side, retailers who chase inventory, such as TJX and Ross, were able to order later in the season.
"They can be much closer to gauging consumer demand," he said.