After struggling with slow sales in the first quarter, retailers may have a new worry in the second quarter: high inventory levels. In their first-quarter results, many retailers reported big jumps in inventory. Those increases could be followed by big markdowns, if slow-sales trends continue. Already, retail leaders such as
Wal-Mart ( WMT), Target ( TGT) and Kohl's ( KSS) have acknowledged that their inventory levels are higher than they want and they may have to cut prices to move products. But markdown pressure is likely to extend far beyond such retail icons, said Kurt Barnard, president and chief economist of Barnard's Retail Consulting Group. And many retailers are likely to take a hit on their bottom line as a result, he said. "People anticipated better consumer spending patterns than they got. They thought that once the Iraq war ended, things would go back to the way they were three years ago, that there would be a spending spree," Barnard said. "That belief was unfounded." Many retailers struggled in the first quarter. After recording slow sales, companies including PetSmart ( PETM), Talbots ( TLB), BJ's Wholesale Club ( BJ), ( JWN) and Safeway ( SWY) Nordstrom warned that they either wouldn't meet their own prior guidance or analysts' expectations. Faced with a tough sales environment and rising costs, former high-fliers such as Target , Williams-Sonoma ( WSM) and Borders Group ( BGP) failed to better their bottom lines from a year ago. Retailers largely blamed the weather and the war in Iraq for their sales woes. Winter storms forced store closures in February and unseasonably cool weather in April and May has dampened demand for spring and summer clothes, retailers have said. Meanwhile, the war in Iraq distracted shoppers, they've said.