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Holiday shopping season: A disappointment so far

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Sparse crowds at malls and "50 percent off" signs at The Gap and other stores offer clues as to how this holiday season is shaping up so far: It's the most discount-driven one since the U.S. was in a deep recession. It's also the most disappointing for stores.

Sales are up 2 percent, to $176.7 billion, from Nov. 1 through Sunday, according to data provided to The Associated Press from store data tracker ShopperTrak. That's a slower pace than expected with days left in the season. ShopperTrak's predicts sales will rise 2.4 percent, to $265 billion, for the two-month stretch that's typically the busiest shopping period of the year.

The modest growth comes as the amount of discounts that stores are offering this season is up 13 percent from last year — the highest level since 2008, according to financial services firm BMO Capital Markets, which tracks 20 clothing stores.

"The holiday season has been marginal to just OK," said Joel Bines, managing director and co-head of the retail practice at AlixPartners. "Retailers are doing anything they can to get rid of merchandise."

The data underscores how aggressive discounting has been both a blessing and a curse for retailers. Since the recession, the only way to get Americans into stores has been to flash huge discount signs in front of their faces.

But the discounting has had unintended consequences. Shoppers become immune to the deals, so retailers must offer bigger discounts to keep them coming into stores. That erodes retailers' sales since shoppers aren't buying things for regular price. It also eats away at retailers' profit margins.

Still, analysts say retailers have created a cycle of constant discounting that they'll have to continue in order to attract U.S. shoppers, many of who are still dealing with stagnant wages and rising costs for things like health care.

Andrew McSherry, who was shopping for an iPad and other gifts in Atlanta on Sunday, agrees that people are holding back even when there are big sales. McSherry, 44, pointed to the small crowds at Lenox Square Mall over the weekend as proof of that.

"The economy is bad and most people's discretionary income is getting squeezed constantly," said McSherry, who works at Verizon. "I don't see any signs of that abating."

Stores are rolling out more discounts to try to attract shoppers in the final days. The number of promotional emails that seven major retailers, including Wal-Mart and Target, sent for the 13-day period that ended Sunday was up nearly 70 percent from the same period last year, according to Market Track, which tracks discounts.

And Toys "R'' Us is offering discounts that it didn't initially plan for Saturday, which is typically the season's biggest sales day. Kathleen Waugh, a Toys "R'' Us spokeswoman who called the season "hyper competitive," said the retailer is cutting prices on popular toys. For instance, Hasbro's Furby Boom, a furry robotic electronic pet that responds to sounds and touch, is being reduced to $39.99, down from $59.99.

Retailers hope the sales will lure last-minute shoppers like Larry Berge. By last weekend, he'd completed 20 percent of his holiday shopping. He was taking advantage of a 30 percent coupon on pajamas for his wife at a Victoria's Secret in Atlanta on Sunday. "It's not like shopping as much as it is a targeted surgical strike," said Berge, 44, a physician.

But the sales so far have not attracted as many shoppers as retailers had hoped. ShopperTrak, a Chicago-based firm that tracks data at 40,000 stores across the country, said the number of shoppers from Nov. 1 through Sunday dropped 16.5 percent compared with the same period a year ago.

Still, ShopperTrak is sticking to its growth forecast. Bill Martin, ShopperTrak's co-founder, reasons that six of the season's top 10 spending days still are left. And he estimates that the week before Christmas accounts for up to 15 percent of holiday business. "The good news is that there are still some big days left," Martin said.

The National Retail Federation, the nation's largest retail group, also is standing by its forecast that sales in stores and online combined will be up 3.9 percent to $602.1 billion.

That growth would be higher than last year when sales rose 3.5 percent, to $579.5 billion, according to the retail federation. Sales have fluctuated widely during the recession, from down 4.4 percent in 2008 to an increase of 5.3 percent in 2010. The last time the holiday season was really strong was in 2004 when sales rose 6.8 percent.

Much of any growth this year could come from online shopping. Even though it only accounts for about 11 percent of spending in the three months that include the holiday shopping season, it's been a bright spot.

Still, online spending even is behind predictions. Online spending from home and work desktop computers in the U.S. from Nov. 1 through Sunday was up 9 percent from the same period last year, to $37.8 billion, according to comScore. But the Internet research firm still expects online sales to meet or slightly surpass its 14-percent growth forecast.

The estimate by comScore depends on shoppers like Christina Fishman, who lives in New York City. She was at Macy's over the weekend to see Santa. But she did most of her shopping online: "The price is comparable and it's convenient," she said.

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