For stores, setting holiday inventories and trying to match demand can be tricky

How stores set their holiday inventories

A look at how stores manage their orders for the holiday season:

A KEY SEASON: For many retailers, holiday business accounts for as much as 40 percent of revenue and profits. For toy sellers, it’s half. For clothing stores in malls, November and December make up about a fifth of the bottom line.

THE INVENTORY PICTURE: Caution rules for holiday 2010, and given that the spending recovery has lost its momentum since this past spring, stores are carefully watching inventories, ready to make any tweaks or adjust their discounting plans. Major toy sellers have planned their holiday inventories to be about the same as last year, says Jim Silver, an analyst at Timetoplaymag.com. Inventories for consumer electronics and clothing chains are slightly bigger.

LONG LEAD TIMES: It’s always tricky for stores to gauge demand for the holiday season because they place orders in advance, but it’s even more challenging these days as spending patterns have been so erratic. Generally, retailers order merchandise four to six months in advance. Luxury stores order Christmas items six to nine months ahead because they’re usually made overseas and involve intricate workmanship. But major toy sellers, including Toys R Us and Wal-Mart Stores Inc., start ordering playthings as early as the previous November because of the sheer volume. Department stores order as long as a year in advance.

UP TO THE MINUTE: Purveyors of trendy fashion order items in the summer because they want to get the latest fads. They also use manufacturing facilities in places like Mexico, instead of farther away like China. Consumer electronics chains also generally order around that time of year to take advantage of technology advances.

Typically, small shops order holiday goods also order in the summer because the quantities are small.