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Holiday shopping hits the skids

Mall traffic drops dramatically in the final run-up to Christmas, and chain stores see only modest sales increase.

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By Parija B. Kavilanz, CNNMoney.com senior writer

Unless retailers get a late-season surge, the 2007 holiday shopping season may disappoint.

NEW YORK (CNNMoney.com) -- After getting off to a fast start last month, holiday sales at some of the nation's largest retailers have slowed to an excruciatingly slow pace and mall traffic has dropped dramatically.

The results, coming two weeks before Christmas, jeopardize an already weak holiday sales period.

Chain-store sales rose a mere 0.2 percent for the week ended Dec. 8, following a disappointing 2 percent sales decline in the prior week, according to a report released Tuesday by the International Council of Shopping Centers.

"Consumers continue to be slow in finishing their holiday shopping," said Michael Niemira, the council's chief economist. "As such, we will be watching the next few weeks to determine how successful this holiday shopping season will be for retailers."

Niemira said he expects total December sales to increase a modest 1.5 percent unless retailers get a much-needed "surge in demand" over the next few days.

Meanwhile, mall traffic has also hit the skids.

According to ShopperTrak, which monitors shopping activity at 50,000 malls and other retail sites in the United States, traffic for the week that ended Dec. 1 was 4.7 percent less than the same week last year.

Compared to the previous week this year, which included the heavy Black Friday and Thanksgiving weekend shopping periods, last week's traffic plunged 22.3 percent.

"Many consumers might be waiting until the last minute to wrap up their holiday spending," said Bill Martin, co-founder of ShopperTrak.

Separately, Britt Beemer, president of America's Research Group, said his research showed that mall traffic was down between 8 and 14 percent since late November. He attributed the decline to more value-conscious consumers were shopping for better prices at discounters like Wal-Mart (Charts, Fortune 500) and Costco (Charts, Fortune 500) instead of specialty stores that haven't slashed prices as aggressively this holiday season.

"Our consumer surveys tell us that more people think malls are inefficient," Beemer said. "They can't park near the stores where they want to shop and they can't get in and out [of malls] quickly."

Beemer added that the next two weekends - especially the Saturday before Christmas, which is typically the biggest shopping day of the year - will be crucial for retailers.

"More than 50 percent of consumers still have to complete their holiday shopping," Beemer said. "There's always a final shopping surge right before Christmas but will it be enough to make up for the early December [sales] shortfall?"

The National Retail Federation, the industry's largest trade group, has forecast that holiday sales in November and December will increase 4 percent, or the smallest holiday sales growth since 2002.

The two-month period accounts for as much as 50 percent of retailers' annual profits and sales.

The retail federation blamed the housing downturn, credit market crunch and higher gas prices for eating away at the discretionary incomes of many low- to mid-income American households.

Since consumer spending also fuels two-thirds of the nation's economy, weaker-than-holiday sales will raise fresh concerns that the resilience of American consumers may be waning, leading to slower economic growth in 2008.

Marshal Cohen, a retail analyst at NPD Group, said stores are partly to blame for the tepid shopping pace.

"Retailers have to be careful what they wish for," said Cohen. "Many wanted a big start to the season so they discounted heavily very early. A lot of people have already finished their gift shopping."

"When you extend the season by doing that, it's more difficult to keep the sales momentum going. Shopping fatigue sets in," Cohen added. "That could be why we're seeing this lull now." To top of page

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