Retailers have to balance spending too much money on inventory that doesn’t sell and not having the items that their customers want.

Back when I was running a large toy store, Time Machine Hobby in Manchester, Conn., we had to make about half of our holiday season inventory decisions in the summer. Brands like Lego and the many puzzle lines we carried required early orders and large financial commitments.

Yes, we could use last year’s data to make guesses, but it was a major challenge to avoid being left with too much of one thing or not enough for the rest of the year. One year, in mid-December, a customer came in and bought nearly our entire supply of Legos.

That was a nice sale, but it angered our other customers who expected us to have the brand in stock.

Larger chains, of course, have more ability to adjust on the fly, but they still have to make decisions before the season that could impact their holiday season sales numbers.

Walmart has an inventory advantage

Store operators and retail chains have to take the temperature of the economy and their consumers when making holiday inventory decisions.

“Retailers expect flat traffic, flat inventory volumes, and flat to slightly down demand as measured by volume expectations. When asked about their promotional strategies, 46% expect similar levels to 2024, and 31% were undetermined. This suggests some issuers will monitor the state of the consumer to adjust their pricing strategies and will hold off on material price increases until after the key holiday selling season,” according to S&P Global.

Walmart has some advantages in the process because it has advanced artificial intelligence (AI) tools that help it make real-time buying decisions. The chain explained how AI will help its holiday inventory decisions.

“Our AI-powered inventory management system is essential for supplying customers with what they need, when they need it, and at the low costs they expect from Walmart. By leveraging historical data and pairing it with predictive analytics, we’re able to strategically place holiday items across distribution and fulfillment centers, and stores, optimizing the entire shopping experience,” the company shared in a press release.

The chain shared some facts about how its tech works:

  • This data management system, along with investments in our supply chain — including automated facilities, department-ready freight, Next-Gen fulfillment centers, and store-based fulfillment — combined with in-store technology used by our associates and our massive last-mile delivery network, also ensures the efficient delivery of items.
  • Our system is more powerful because it integrates insights from all the channels we use to serve customers. As an omni-channel retailer, we analyze both physical and digital sales to deliver our customers with an easy shopping experience over the holidays and beyond.
  • We also consider ‘future data’ such as macroweather patterns, macroeconomic trends and local demographics to anticipate demand and potential fulfillment disruptions.
  • With this combined data, our engines identify and correct discrepancies, inefficiencies, or inaccuracies in supply chain models.
  • By the time our customers are ready to shop, our AI/ML data has already completed the heavy lifting to improve inventory flow.

“Walmart’s sheer scale sets it apart from every other retailer in ways that create insurmountable competitive advantages. With annual revenues exceeding $693 billion and a market capitalization of over $810 billion, the company operates at a level that dwarfs most competitors — Target, by comparison, has a market cap of just $40 billion,” wrote Investing.com’s Shane Nagle.

Most retailers are being cautious

“Despite tariff policy uncertainty, retailers will manage their inventory levels prudently. According to the survey results, 15% of respondents expect inventory levels (units) to be above last year, 54% expect them to be in line with last year, and 31% expect them to be below last year,” S&P added.

The research firm believes that the Covid pandemic taught many retailers some lasting lessons.

“We believe retailers have learned from their experiences with supply chain challenges following the pandemic and have brought their inventory management strategies into this uncertain period,” it added.

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Retail sales in November and December will grow between 3.7% and 4.2% over 2024. That translates to total spending between $1.01 trillion and $1.02 trillion. By comparison, last year’s holiday sales rose 4.3% over 2023 to reach $976.1 billion, according to data from the National Retail Federation.

“American consumers may be cautious in sentiment, yet remain fundamentally strong and continue to drive U.S. economic activity,” NRF CEO Matthew Shay said. “We remain bullish about the holiday shopping season and expect that consumers will continue to seek savings in nonessential categories to be able to spend on gifts for loved ones.”

Walmart has used AI to keep its shelves stocked.

Shutterstock

Walmart has managed its inventory well

Incoming Walmart CEO John Furner commented on outgoing CEO Doug McMillon’s remarks about the chain’s inventory during its fourth-quarter earnings call.

“Doug mentioned inventory performance being up just about 3%. We’re really pleased with that performance. As mentioned, our in-stock is better. Selling through and seasonal sell-through has been really strong in the last couple quarters, which has helped our gross margin. Obviously, that results in savings of markdowns,” he shared.

Walmart’s ability to hold prices and manage its supply chain was praised by AInvest.

The key to Walmart’s pricing success lies in its ability to absorb cost pressures from tariffs— particularly on Chinese imports — without eroding margins. By leveraging its scale and supply chain expertise, Walmart has managed to pass on savings to consumers while maintaining gross margins,” the website shared.

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Walmart is not alone in using AI.

“To prevent inventory from running out, big-box retailers such as Target, The Home Depot, and Walmart are using AI to predict when product amounts could dwindle. As a result, Target’s inventory availability has improved every year for the last four years, Prat Vemana, the executive vice president and chief information and product officer at Target, told Business Insider.

Walmart, however, may have the edge over its rivals.

“I don’t believe there is a university in the world that doesn’t talk about Walmart and the supply chain, for the mere fact that it garners such respect for what it’s accomplishing,” shared James Crowell, director of the Supply Chain Management Research Center at the Walton College of Business.

That’s a commonly held point.

“Holding firm to its core purpose all these years, Walmart has continued to build a more efficient supply chain process so that customers can come in, find what they are looking for at the lowest price possible, and go home,” Extensiv reported.

“…Walmart has exceeded what other companies dream to achieve by remaining steadfast in their goal to always save the customer money first.”

How Walmart uses AI

  • AI‑driven demand forecasting: Walmart uses advanced AI models (e.g., neural networks) to predict future demand, enabling more accurate planning of inventory levels across stores and fulfillment centers, according to Retail Dive.
  • Real‑time inventory oversight:Agentic AI tools give Walmart a unified, real‑time view of inventory across its network — helping detect and fix issues like unexpected demand surges or stock imbalances automatically, according to Retail Dive.
  • Ambient IoT feeding AI systems: Walmart is integrating millions of ambient IoT sensors (Pixels) whose data feeds into its AI systems to improve inventory accuracy, supply chain visibility, and condition monitoring, the company shared in a press release.
  • Optimizing inventory decisions: Greg Cathey (Walmart SVP of Transformation & Innovation) says AI combined with IoT “optimizing our supply chain to make faster, smarter inventory decisions” by knowing exactly what inventory Walmart owns and where it is, reported Supermarket News.
  • Automated alerts & reduced manual work: Sensor data flowing into Walmart’s AI platforms eliminates manual tasks and delivers automated alerts, giving associates timely signals about inventory anomalies, according to Supply Chain Dive.
  • Global AI orchestration: Walmart’s global supply chain integrates “self‑healing inventory” and agentic AI that turns real‑time signals into actions — e.g., rerouting stock before shortages appear at stores, Walmart shared on its website.

“Walmart has evolved far beyond its brick-and-mortar roots. It has built one of the largest omnichannel ecosystems in the world, using its store network as fulfillment hubs for pickup and same-day delivery. This integration of digital and physical assets has enhanced convenience while keeping last-mile costs competitive. E-commerce remains a key growth lever, supported by initiatives like Walmart Marketplace and its third-party fulfillment services,” according to Zack’s Equity Research.

Related: Best Buy, Macy’s, and Kohl’s add fees to holiday returns