Despite the huge discounts and other incentives that stores offered leading up to Christmas, U.S. holiday sales so far this year have been the weakest since 2008, when the nation was in a deep recession.
So stores now are depending on the days after Christmas to make up lost ground: The final week of December can account for about 15 per cent of the month's sales, and the day after Christmas is typically one of the biggest shopping days of the year.
Stores, which don't typically talk about their plans for sales and other promotions during the season, are known for offering discounts of up to 70 per cent in the days after Christmas. This year, they're hoping to lure more bargain hunters who held off on shopping because they wanted to get the best deals of the season.
The Macy's location in Herald Square in New York was bustling with shoppers on Wednesday. There were a variety of deals throughout the store: candy dispensers for 70 per cent off, various men's clothing items for "buy one get one free," belts for 50 per cent off, a bin of ties for $9.99.
Ulises Guzman, 30, a social worker, was shopping in the store. He said he held off buying until the final days before Christmas, knowing that the deals would get better as stores got more desperate. He said he was expecting discounts of at least 50 per cent.
The strategy worked. He saw a coat he wanted at Banana Republic for $200 in the days before Christmas but decided to hold off on making a purchase; on Wednesday, he got it for $80.
"I'm not looking at anything that's original price," he said.
Lenox Square Mall in Atlanta was also crowded by midday on Wednesday. Laschonda Pitluck, an 18-year-old student, had held off on shopping until after Christmas because she wanted big deals. Last year she spent over $100 on gifts but this year she's keeping it under $50.
Pitluck said she found items for 50 per cent off, including a hoodie and jeans for herself at American Eagle and a shirt at Urban Outfitters. She said she would have bought the clothes if they hadn't been 50 per cent off.
"I wasn't looking for deals before Christmas, I waited until after," she said. She bought boxers for her boyfriend, and was looking for a hat but couldn't find one.
Holiday sales are a crucial indicator of the economy's strength. November and December account for up to 40 per cent of annual revenue for many retailers.
So far, sales of electronics, clothing, jewelry and home goods in the two months before Christmas increased 0.7 per cent compared with last year, according to the MasterCard Advisors SpendingPulse report. That was the weakest holiday performance since 2008 when sales dropped sharply.
Kathy Grannis,a spokeswoman at The National Retail Federation, the nation's largest retail trade group, said Wednesday the trade group is sticking to its forecast for sales in the November and December period to be up 4.1 per cent to $586.1 billion this year. That's more than a percentage point lower than the growth in each of the past two years, and the smallest increase since 2009 when sales were up just 0.3 per cent.
Grannis noted that the trade group's definition of holiday sales also includes food and building supplies. "Stores have a big week ahead, and it's still too early to know how the holiday season fared, at this point," she said.
Spending by consumers accounts for 70 per cent of overall economic activity, so the eight-week period encompassed by the SpendingPulse data is seen as a critical time not just for retailers but for manufacturers, wholesalers and companies at every other point along the supply chain.
The SpendingPulse data released Tuesday, which captures sales from Oct. 28 through Dec. 24 across all payment methods, is the first major snapshot of holiday retail sales. A clearer picture will emerge next week as retailers like Macy's and Target report revenue from stores open for at least a year. That sales measure is widely watched in the retail industry because it excludes revenue from stores that recently opened or closed, which can be volatile.
In the run-up to Christmas, analysts blamed bad weather for putting a damper on shopping. In late October, Superstorm Sandy battered the Northeast and mid-Atlantic states, which account for 24 per cent of U.S. retail sales.
Shopping picked up in the second half of November, but then the threat of the country falling off a "fiscal cliff" gained strength, throwing consumers off track once again.
Lawmakers have yet to reach a deal that would prevent tax increases and government spending cuts set to take effect at the beginning of 2013. If the cuts and tax hikes kick in and stay in place for months, the Congressional Budget Office says the nation could fall back into recession.
Shopping over the past two months was weakest in areas affected by Sandy and a more recent winter storm in the Midwest. Sales declined by 3.9 per cent in the mid-Atlantic and 1.4 per cent in the Northeast compared with last year. They rose 0.9 per cent in the north central part of the country.
The West and South posted gains of between 2 per cent and 3 per cent, still weaker than the 3 per cent to 4 per cent increases expected by many retail analysts.
Online sales, typically a bright spot, grew only 8.4 per cent from Oct. 28 through Saturday, according to SpendingPulse. That's a dramatic slowdown from the online sales growth of 15 to 17 per cent seen in the prior 18-month period, according to the data service.
Online sales did enjoy a modest boost after the recent snowstorm that hit the Midwest, McNamara said. Online sales make up about 10 per cent of total holiday business.
Anderson reported from Atlanta and Choi reported from New York.
Ann D'Innocenzio in New York and Daniel Wagner in Washington contributed to this report.