At A Glance
Explore retail industry risk trends for Q4 2025 inventory gaps and credit shifts impact CRO strategies in the latest Commercial Pulse Report.As we enter the final stretch of the year, the retail sector is bracing for its most critical quarter—and the pressure is mounting. While consumer spending intentions remain historically strong, inventory levels are trailing demand, and discretionary retail continues to show signs of stress. For Chief Risk Officers managing exposure across commercial credit portfolios, this year’s holiday season demands a recalibrated lens on retail performance and credit risk.
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As you will read in the latest Commercial Pulse Report for November 11, 2025, retail sales posted a year-over-year gain of 5.0% in August, with a 0.6% increase month-over-month. Stripping out autos and gas, the underlying sales trend rose 0.7%, reflecting sustained demand across core categories. On the surface, this suggests stable footing as the industry heads into Q4.
But beneath that surface, the risk picture is more nuanced.
Inventory Constraints May Reshape Holiday Pricing
One of the more critical data points in this month’s report is the widening gap between retail sales growth and inventory accumulation. Since June 2020, inventories and sales grew at relatively similar paces—43% and 41%, respectively. But recent months reveal a break in that pattern. As of August 2025, retail inventories have grown by just 1% since last measurement, while sales rose by 5% over the same period.
This tightening inventory-to-sales ratio should be on every risk leader’s radar. It introduces not only pricing risk, with the potential for inflationary retail markups, but also operational risk for borrowers. If inventory levels fail to meet consumer demand, retailers may lose critical Q4 revenue opportunities—especially smaller or newer businesses with less flexibility in their supply chains.
For lenders, this underscores the importance of assessing real-time liquidity and vendor relationships among retail clients, particularly those relying on seasonal peaks to stabilize annual margins.
Discretionary Retail Faces Structural Headwinds
While overall retail shows healthy top-line numbers, the discretionary retail subsector—including apparel, hobby, and department stores—presents a very different profile.
Experian’s data shows that commercial credit inquiries in discretionary categories have declined sharply over the past several years. Department stores, in particular, have seen a 58% drop in credit inquiries since 2019, a signal of diminished expansion activity or tightened risk appetite among lenders and borrowers alike.
What’s more, although the share of new commercial originations from retailers has remained steady at around 2%, it’s increasingly clear that capital is being allocated to more essential or diversified retail categories. This suggests a reallocation of credit risk across sub-sectors—an opportunity for CROs to reassess portfolio concentration and risk-adjusted return profiles within the broader retail segment.
Credit Demand Rebounds, but Signals Are Mixed
Despite these headwinds, average monthly commercial credit inquiries across the retail industry have surged 40% over the past two years. This rebound indicates growing interest in capital access, likely driven by inventory financing and pre-holiday preparations.
Additionally, average loan and line sizes have stabilized above $30,000 since April 2025, reversing a downward trend that saw originations dip below $28,000 in early 2024. On one hand, this suggests improved confidence and capital deployment. On the other, it raises questions about underwriting discipline and borrower leverage heading into a period of economic uncertainty.
CROs should scrutinize whether this rise in loan volume aligns with stronger business fundamentals—or if it reflects deferred risk accumulation masked by short-term revenue goals.
Stable Scores, Shifting Strategies
Interestingly, commercial credit scores in discretionary retail have remained stable, even as inquiries decline. This points to relatively contained delinquency risk—at least in the near term—and suggests that while activity may be slowing, the borrowers still active in the market remain creditworthy.
However, risk managers should treat this with caution. Stable scores in a declining volume environment can be misleading if the overall pool of applicants is narrowing to only the most creditworthy businesses. It may not reflect the latent risk in smaller or emerging retailers who are opting out of new credit altogether due to cost, confidence, or eligibility barriers.
In this context, periodic stress testing and forward-looking scenario planning become critical. What happens to score stability if Q4 revenues disappoint or if inventory shortages impact gross margins more severely than expected?
Consumer Sentiment vs. Retail Reality
The University of Michigan’s consumer sentiment index dropped to 53.6 in October, a full 24% below the level one year ago. This kind of sentiment pullback often precedes reduced discretionary spending, even if intent surveys, like the NRF’s October Holiday Consumer Survey, show consumers planning to spend at near-record levels.
For CROs, the discrepancy between consumer optimism and sentiment data should raise a red flag. If expectations do not materialize into real revenue, lenders with exposure to retail—especially smaller, inventory-sensitive borrowers—could face elevated delinquency risks in Q1 2026.
Key Takeaways for CROs
- Inventory management is the fulcrum this holiday season. Underestimating inventory strain could lead to both missed revenue and cash flow risk.
- Credit demand is up, but not equally distributed. Focus on where capital is flowing—and where it’s being withheld.
- Stable credit scores should not overshadow weakening sentiment and softening discretionary activity.
- Stress test your retail portfolio against a holiday season that underperforms expectations, particularly for smaller or newer businesses.
Experian continues to provide actionable data to help businesses, lenders, and policymakers navigate uncertainty. To access the full Commercial Pulse Report and explore more insights on small business credit and sector-specific performance:
- ✔ Visit our Commercial Insights Hub for in-depth reports and expert analysis.
- ✔ Subscribe to our YouTube channel for regular updates on small business trends.
- ✔ Connect with your Experian account team to explore how data-driven insights can help your business grow.
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Small business formation remains one of the more notable trends in the U.S. economy. In August 532,000 new businesses launched across the country. While that was down from July, it remained well above historical averages. Since July 2020, an average of 455,000 new businesses have opened each month—56% higher than the pre-pandemic monthly average in 2018 and 2019. But the national numbers only tell part of the story. Watch The Commercial Pulse Update Experian’s latest Commercial Pulse report analysis examines where this growth is occurring and what it means for the commercial credit market. The data show that the South has emerged as an important center of small-business growth. And the businesses driving that expansion tend to have a different profile from their counterparts in other regions. For commercial lenders, understanding those differences can provide valuable context when evaluating new opportunities, credit demand and portfolio risk. Business growth is shifting geographically New business formation has increased across all U.S. regions, but the pace has not been uniform. Prior to 2018, regional differences in growth were relatively modest. During the pandemic years of 2020 and 2021, the South led the country in new business application growth. Since 2022, the West has posted the strongest growth, while the South continues to account for the greatest volume of new business openings. One factor providing context for that growth is population. The population of the South has grown more than 7% since 2019. Since 2020 alone, the region has added more than 3.6 million residents, outpacing every other U.S. region. Meanwhile, populations in other parts of the country declined between 2020 and 2022 before beginning to recover. Business formation and population movement do not necessarily have a simple cause-and-effect relationship. But their parallel growth highlights how the geographic makeup of both consumers and businesses has been changing. Credit-active businesses are growing even faster in the South The shift becomes even clearer when looking at businesses using commercial credit. Experian data shows the number of credit-active businesses in the United States has increased 55% since 2018. Every region participated in that expansion, but the South experienced the greatest growth at 70%, followed by the North at 52%, West at 50% and Midwest at 36%. The South now represents approximately 39% of U.S. credit-active businesses. It also accounted for more than 40% of newly opened commercial accounts in 2026, compared with 37% in 2019. For commercial credit organizations, that means the South represents not just a growing population of businesses, but an increasingly significant share of businesses participating in the commercial credit ecosystem. Southern businesses tend to be smaller and younger The composition of this growth is just as important as its scale. Credit-active businesses in the South and West tend to skew smaller and younger than those in the North and Midwest. In the South, 53% of businesses generate less than $500,000 in annual revenue, while 59% have fewer than five employees. Only 36% have been operating for more than 10 years, compared with 43% in the Midwest. Those characteristics can influence how businesses interact with credit. A younger business, for example, may have had less time to establish multiple commercial credit relationships. That pattern appears in Experian’s data. Across the United States, the average number of commercial credit accounts per business has declined from approximately 1.8 in 2018 to 1.5 in 2026. The South experienced the steepest decline and currently has the fewest accounts per business. At the same time, commercial credit inquiries have increased since 2023, most recently peaking in early 2026. Inquiry rates have typically been higher in the Midwest and South. The combination of fewer existing accounts and elevated inquiry activity provides useful context for lenders seeking to understand the credit needs of a growing population of younger businesses. Credit utilization tells another part of the story Regional differences also appear after businesses establish credit relationships. Businesses in the Midwest and North opening new commercial accounts tend to receive higher lines than businesses in the South and West. At the same time, businesses in the South show higher commercial card utilization despite carrying somewhat lower average balances. Experian’s analysis points to lower credit lines as an important factor behind that relationship. These trends reinforce why looking beyond a single credit metric can be important. Higher utilization, for example, can take on additional context when considered alongside credit-line size, business age, balances and regional business formation. Growth brings opportunities—and risk factors to monitor Despite significant growth and changes in business composition, regional credit performance has remained relatively steady. Commercial delinquencies across all regions are near pre-pandemic levels, while commercial credit risk scores have been relatively stable. There are regional differences worth monitoring, however. Businesses in the South have lower average commercial credit scores than businesses in the other regions analyzed, and delinquency rates tend to be higher in the North and South than in the Midwest and West. The broader takeaway is not simply that there are more small businesses in the South. It is that the composition of the commercial market is evolving alongside that growth. The South represents a growing share of credit-active businesses and new commercial accounts. Many of those businesses are younger, smaller and have fewer established commercial credit relationships. Their credit needs and behaviors may therefore differ from those of more mature businesses in other parts of the country. For commercial lenders and risk leaders, understanding those distinctions can help provide greater context around acquisition, underwriting and portfolio management decisions. As small business formation continues, Experian will continue monitoring where that growth is occurring—and how the changing business landscape is showing up in commercial credit behavior. Learn more ✔ Visit our Commercial Insights Hub for in-depth reports and expert analysis. ✔ Subscribe to our YouTube channel for regular updates on small business trends. ✔ Connect with your Experian account team to explore how data-driven insights can help your business grow. Download the Commercial Pulse Report Visit Commercial Insights Hub Where are small businesses growing in the U.S.? Experian data points to significant growth in the South. While new business formation has increased across the country, the South has consistently recorded the highest volume of new business openings and has seen the number of credit-active businesses grow 70% since 2018—compared with 55% nationally. Where are small businesses growing the most? The South has consistently had the largest volume of new business openings. The South led application growth during 2020–2021, while the West has posted the strongest growth rates since 2022. That distinction is important because it prevents the SEO headline from overstating what the data shows. Why has small business growth been so strong in the southern U.S.? The South has added more than 3.6 million residents since 2020, substantially outpacing other regions. Our report establishes a correlation rather than causation. 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