The holiday selling season is heading down the home stretch amid deep price discounts, excess inventory, and narrower profit margins.

Those three factors are combining to create an “uncertain environment” at retail where sales are expected to increase in the low single digits as consumers are tested by higher prices and a potential recession, licensing industry executives said.

“We are operating in a highly inflationary environment as we continue to see uncertainty,” said John Swygert, CEO at discounter Ollie’s Bargain Outlet. “It’s a very promotional environment, so everyone’s fighting for everyone’s dollars.  We are definitely seeing some pressure on some discretionary items that are more expensive, but we believe the value proposition we’re providing is pretty strong and the consumers are responding well to what we’re offering.”

That retail battle is evidenced by discount and off-price chains reporting strong sales of closeout merchandise, much of which is excess inventory from suppliers and retailers alike. Five Below sourced products under Disney, Lilo & Stitch, and Marvel licenses, all “at extreme value,” and continues to pursue close-out goods, said Five Below CEO Joel Anderson. Close-outs are a low single-digit percentage of Five Below’s wholesale purchases, but feature some Funko products like a 12-inch Marvel action figure, Anderson said.

To a large extent, much of the discounting is around toys and apparel, both of which have struggled with excess inventory. Target mailed out flyers offering up to 40% off select toys, while Dollarama has been selling some items at a 15% discount. Dollarama has also introduced a new $4.25 – $5 price range to help offset increased logistics costs, CEO Neal Rossi said.

“The closeout market remains extremely favorable with deals, deals, and more deals,” Swygert said. “We are seeing incredible opportunities across all of our categories and the availability of deals continues to grow from both new and existing vendors.”

Yet amid the promotions and discounting are signs that logistics costs are declining to pre-pandemic levels at $2,000 – $3,000 for a 40-foot container. This leads to the question of whether the higher retail prices—charged to consumers across many categories to offset inflation and rising logistics costs—will continue into 2023.

If those higher prices do remain, suppliers will likely report improved profits next year, said Small Cap Consumer Research CEO Eric Beder. This is especially true for categories like apparel, which consumers are unlikely to purchase on an everyday basis. As a result, price increases for those items are less noticeable than at, for example, the grocery store.

“If companies hold the pricing they had this year, they will make a significant amount of money in 2023,” Beder said.