Updated from 5:14 p.m. EST

With Christmas just two days away, retailers shouldn't expect a holiday surprise to uplift a disappointing holiday season.

Despite a flurry of holiday sales over the weekend, ShopperTrak RCT said December retail sales are down more than 5.5% from last year. Meanwhile, retail giants

Wal-Mart

(WMT) - Get Report

,

Target

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and

Federated Department Stores

(FD)

reported below or at the bottom range of their plans, casting doubt on the fortunes of the rest of the retail sector.

"If Wal-Mart's saying they are having sales below plan, that's a bad sign," said Jay McIntosh, a retail analyst for Ernst & Young. The retailing giant said Monday that two of its divisions are performing below guidance.

Until recently, the poor holiday sales figures were not terribly disconcerting because they were within companies' projections, analysts say. But with sales falling below those projections, companies' earnings could take a hit.

"Retailers figure on a certain kind of performance. When sales fall below that, you see some material impact," said Michael Niemira, president of Bank of Tokyo-Mitsubishi and lead consultant on ShopperTrak's retail report.

The holidays have not been a happy time so far. Last month, many retailers, including

Target

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and

Sears

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,

reported same-store sales declines. Others, including Wal-Mart, reported that same-store sales came in toward the bottom of expectations. (Same-store sales compare results from outlets open more than one year.)

Wal-Mart's not the only one feeling the holiday pinch. Target's same-store sales for both last week and the first three weeks of December have come in "well below plan," the company said on Monday. Target had expected its comparable-store sales to grow 3% to 5%.

Federated's results echoed Target's. The company's same-store sales for November and December are coming in below its estimated range of flat to down 2.5%, the company said Monday. Wal-Mart closed trading Monday down $1.20, or 2.4%, to $49.59. Target closed down $1.35, or 4.5%, to $28.54 and Federated finished trading off 15 cents, or 1.5%, to $9.63.

"Sales did not strengthen as much as anticipated in the third week of December," Federated said in a statement. "Given the anticipated volume of the next few days before Christmas as well as the week after Christmas, it is difficult to forecast."

Spending did pick up last week and over the weekend, according to ShopperTrak. Sales at general merchandise, apparel, furniture and specialty stores amounted to $144.6 billion in the week ended Saturday, up about 22% from the previous week, ShopperTrak said. But sales were down 5.8% compared with the same week last year.

Over the weekend, sales at such stores totaled $12.6 billion, boosted by $7.2 billion in spending on Saturday, the biggest retail shopping day of the year so far, ShopperTrak said. The weekend's sales were up 1.6% compared with last year.

Despite the last-minute shopping boost, ShopperTrak upped its estimate for the decline in December retail sales from 5.4% to 5.5% compared with last year.

"The industry is still struggling," Niemira said.

The disappointing overall retail sales were reflected at individual retailers. Wal-Mart, for instance, said that its overall sales are still coming in at the

low end of its plan of 3% to 5% same-store sales growth for December. But the company said that sales at its core Wal-Mart stores division are coming in below that range. Additionally, comparable-store sales at Wal-Mart's Sam's Club division are expected to be negative, the company said.

"Although sales dollars are strong, comparisons with last year are difficult. This holiday season is very difficult to predict with fewer shopping days and customers buying closer to the event," Wal-Mart said in a statement.

Wal-Mart's not the only one feeling the holiday pinch. Federated said Monday that its same-store sales for November and December are coming in below its estimated range of flat to down 2.5%. Wal-Mart closed trading Monday down $1.20, or 2.4%, to $49.59. Federated finished trading off 15 cents, or 1.5%, to $9.63.

"Sales did not strengthen as much as anticipated in the third week of December," the company said in a statement. "Given the anticipated volume of the next few days before Christmas as well as the week after Christmas, it is difficult to forecast."

A falloff in same-store sales is not necessarily a bad thing, analysts say. Some of the declines in spending are coming because retailers are seeing an increase in productivity and a decrease in supplier costs, and they are passing on the savings to consumers in the form of lower prices.

"Retailers have done a terrific job of taking costs out of the supply chain," said Ernst & Young's McIntosh. "Because of their improved cost structure, they are able to have some level of profitability even at such reduced prices."

And the decline in sales doesn't necessarily imply that consumers have stopped spending. Not only are prices lower, but consumers are spreading their dollars around at a greater number of stores. Chains such as Wal-Mart, for example, have dramatically increased their square footage, increasing the likelihood of new stores stealing sales from older ones.

Meanwhile, stores that used to compete only with other companies in their niche are finding a broader range of competitors offering similar products. Instead of going to an electronics store such as

Best Buy

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to buy a digital camera or DVD player, consumers can find much the same selection at a discounter such as Wal-Mart, a wholesale club such as

Costco

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or a department store such as Sears.

"If store comps are not as strong as a year ago, you can't look at that and say consumer spending is weak," said Rob Wilson of Tiburon Research Group. "There are simply more stores out there."

But the glut in stores could lead to a shakeout, Wilson said. Gap, for instance, has promised to cut the square footage it operates by 2% through store closings, he noted.

"I think that was a shot across the bow. I think you're going to start seeing more of that next year," Wilson said. "Investors who are looking for growth are not going to look at the retail sector next year."

In the meantime, the increased competition and discounting has put retailing in a deflationary cycle, said Richard Hastings of Cyber Business Credit. Many consumers are delaying their spending because they expect retailers will drop their prices. And retailers are dropping their prices to try to encourage consumers to come into their stores. While retailers find it relatively easy to predict sales in an inflationary environment, few know how to deal with a deflationary one, Hastings said. "Deflation is very hard to deal with," he said.