Oct. 17 (Bloomberg) -- Mary Shannahan didn't find what she wanted in her size at the Queens Center Mall after browsing through Macy's Inc., Loehmann's Inc. and J.C. Penney Co. stores.

``I find it hard to find the petite sizes,'' Shannahan, an 80-year-old retiree from Queens, New York, said while shopping this week. ``They might have had it before, but they don't get it back in.''

Shannahan's experience may signal tougher times for retailers going into what may be the slowest holiday season in six years. After a year of cutting inventory to limit markdowns, U.S. stores may not have the goods they need to draw in customers coping with the worst financial crisis since the Great Depression.

``Some people may be holding out waiting for better deals, but then the inventory may not be there when they finally go out to shop,'' said Stacy Janiak, vice chairman for retail at New York consultant Deloitte. ``It will be a little bit of a cat and mouse game between consumer and retailers.''

U.S. retailers may see a 2.2 percent increase in holiday sales, the worst performance since 2002, according to the National Retail Federation. Kohl's Corp., Gap Inc. and Talbots Inc. are among the companies that said their inventory will be lower this year.

Menomonee Falls, Wisconsin-based Kohl's inventory per store fell 15 percent in the quarter through Aug. 2 compared with a year earlier. Gap, based in San Francisco, shrank its inventories by 14 percent to $1.7 billion in the same period.

Retail Timing

Retailers are also bringing in goods closer to when they plan to sell them, which raises a new risk they'll be left out of stock, said Antony Karabus, chief executive officer of Karabus Management, a Toronto-based retail-consulting firm acquired by PricewaterhouseCoopers Canada.

A number of retailers have cut fashion and seasonal merchandise by as much as 10 percent per square foot, Karabus said. They are also refusing late shipments from manufacturers they would have accepted in the past, he said.

``There's no question when you start looking at the holiday business that retailers are going to start running out of things sooner than they did in the past,'' said George Whalin, president of Retail Management Consultants in Carlsbad, California.

``Inventory has been an important aspect of our strategic plan, and we believe we have planned appropriately going into the upcoming holiday season,'' Talbots Chief Financial Officer Ed Larsen said in a statement.

Shares Rise

Talbots rose 52 cents, or 5.7 percent, to $9.58 at 4:15 p.m. in New York Stock Exchange composite trading, leaving it with a 19 percent decline this year. Kohl's climbed 6 cents to $30.49 and Gap declined 3.6 percent to $13.42.

The Standard & Poor's 500 Retailing Index has declined 32 percent this year, almost matching the 33 percent decrease in the Dow Jones Industrial Average.

Many department stores and specialty clothing chains have underinvested in systems designed to manage orders and keep track of sizes, Karabus said. Exceptions include J.C. Penney and Kohl's, he said, which have ``done a good job.''

The risk to retailers is that customers who walk away empty-handed may not be back a second time.

Lost Sales

A lost sale ``is a much bigger loss than a markdown,'' Karabus said. ``There's nothing worse than disappointing a customer.'' Because shoppers are making fewer trips to save money on gasoline, ``they're not going to come back like they might have a year ago,'' he said.

Shelly Winkel, a public relations executive from Brisbane, Australia who visited New York City in August, said in an e- mail that she was ``prepared to buy up big and do my bit for the U.S. economy'' with the help of the stronger Australian dollar.

``The prices were great and the styles perfect, but more than a few times there was a limited band of sizes and colors,'' said Winkel, who shopped at shoe store Aldo U.K. Ltd. among other locations. ``It was frustrating to be referred to other outlets in an unknown city.''

Shoppers' disappointment with a slim selection ahead of the holiday season won't help companies that have seen U.S. consumers pull back most of the year because of job losses, declining home values and higher food and fuel costs. Sales in November and December can account for as much as 35 percent of a retailer's annual revenue, according to the retail federation.

Macy's plans to stock popular items for the holidays and is working to tailor sizes by individual store preferences, spokesman Jim Sluzewski said.

`Plenty of Merchandise'

``We think there will be plenty of merchandise in the stores this holiday,'' Sluzewski said. ``We certainly don't expect to have any issues with customers finding inventory.''

``We're comfortable with our strategy to continue to manage inventory tightly, which we believe is prudent in the current economic environment,'' Gap spokeswoman Louise Callagy said today in an e-mail.

Spokesmen at Kohl's, J.C. Penney and Aldo didn't immediately respond to requests for comment.

Retailers selling discounted goods such as TJX Cos. and Costco Wholesale Corp. are finding their own choices expanding as competitors cancel orders, Karabus said.

Size Selection

``You see off-price retailers do better'' when the economy slows, said Mara Kelly, vice president of marketing at Loehmann's Inc., a Bronx-based chain with more than 65 stores. What shoppers may not find in those stores, which rely on merchandise department stores don't want, is a full selection of sizes, she said.

``That's just the nature of our business,'' Kelly said. ``I think our stores are pretty full.''

Getting the right inventory levels is ``somewhat of a guessing game,'' especially since consumers will likely continue to shop closer to the holidays as they have in previous years, Whalin said.

``Holiday shopping is an emotional experience, not a treasure hunt,'' said shopper Winkel. ``I'm a curvy size 6, but at times I walked away feeling like a freak.''

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: October 17, 2008 16:43 EDT