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Holiday Sales Drop at Least 5.5%

The Associated Press

By Lauren Shepherd

NEW YORK -- Bargain-hunters hit the stores early Friday to take advantage of drastic price cuts offered by retailers desperate to get rid of old merchandise and boost their less-than-cheery holiday sales.

Many retailers opened before 6 a.m., offering deals like 50% to 75% off on toys, furniture, electronics and clothing. J.C. Penney(JCP Quote) opened at 5:30 a.m. EST -- the earliest post-Christmas opening in the chain's history -- and offered customers more than 100 "door busters" until 1 p.m, including 75% off Christmas decorations. The chain even made wake-up calls to customers who signed up online.

Shoppers arrived at 6 a.m. the day after Christmas at Macy's(M Quote) flagship store in Manhattan to take advantage of deeply discounted merchandise.

Stores were hoping the discounts would entice shoppers to redeem gift cards and use cash from returning unwanted gifts to buy something new.

But with gift card sales down this holiday season and consumers looking to save money rather than spend it, even the big discounts may not be enough to save what looks to be one of the most dismal holiday shopping seasons in years.

Holiday sales typically account for 30% to 50% of a retailer's annual total. But shoppers cut back their spending this year as they struggled with job cuts, home foreclosures, portfolio losses and other economic woes. Strong winter storms during the holiday season also kept some would-be shoppers at home.

According to preliminary data from SpendingPulse -- a division of MasterCard Advisors that tracks total sales paid for by credit card, checks and cash -- retail sales fell between 5.5% and 8% during the holiday season compared with last year. Excluding auto and gas sales, retail sales fell between 2% and 4%, according to SpendingPulse.

A better indicator of how retailers fared will arrive Jan. 8, when major stores report same-store sales, or sales at locations open at least a year, for December.

Analysts have kept slashing their holiday estimates. Michael P. Niemira, chief economist at the International Council of Shopping Centers, expects that sales at established stores for November and December will fall 1.5% to 2% -- which would make it the weakest holiday season since at least 1969, when the index began.

With sales looking slim, retailers are hoping the day after Christmas this year will be reminiscent of another big shopping day.

"It has a Black Friday feel to it," said Tom Aiello, a spokesman for Sears and Kmart, units of Sears Holdings(SHLD Quote), likening the post-Christmas promotions to those found the day after Thanksgiving when retailers historically began to turn a profit for the year.

Sears stores were opening several hours early at 7 a.m. and offering door buster deals through noon, such as 60% off fleece or knit tops and 65% off all women's boots.

Kmart is cutting in half prices on necessities, such as fall and winter clothes for the family, and offering deals on seasonal decor.

Toys R Us said it is cutting prices by 60% on some brands the day after Christmas.

Other retailers such as Target(TGT Quote) are pushing online deals, rather than in-store promotions, more heavily in the post-holiday period. Target said it is putting thousands of items on clearance and making them eligible for free shipping the day after Christmas.

Others, like Wal-Mart(WMT Quote), are waiting until the weekend to make markdowns on items such as televisions, office and home goods but say they will continue in-store promotions of the week.

Several retailers said they will continue or add new promotions in January, as experts predict the recession will carry into 2009.

AP Business Writers Sarah Skidmore in Portland, Ore., and Betsy Vereckey in New York contributed to this report.