Blame it on oil prices, blame it on the sagging

Nasdaq

, blame it on the lack of a worthy follow-up to pashmina -- but the holidays aren't looking too joyful for retailers.

Monday

Why Retailers Fear a Red Christmas

Tuesday

The Winter of Misfit Toys

The Good News at the Gap

Wednesday

Retailers Minding Too Many Stores

Holiday Shopping Bag: Maybe the Web Can Work After All

Merrill Lynch

estimates that sales at general merchandise stores open at least a year will rise just 2.8% in November and December, compared with a 5% increase last year, in what would be the worst showing since 1990. And comparable-store sales at specialty retailers will likely rise just 3.5%, compared with a 5.2% gain last year, Merrill predicts. Moreover, those are likely to be low-margin sales, as retailers cut prices and face their own rising costs. True, Merrill's predictions are on the pessimistic end: The

National Retail Federation

estimates growth as high as 6.5%, but no one is predicting a blowout.

How did this happen? After all, a year ago, things looked pretty good.

Wal-Mart

(WMT) - Get Report

was trading at $58.

Gap

(GPS) - Get Report

was at $37. Since then, those retail

bellwethers have seen their shares chopped by 20% and 44%, respectively, while the

S&P Retail Composite Index

has fallen almost 10%.

What You See

There's more than one culprit behind the bad year and the expectations for a bad holiday season. First, blame tougher comparisons with last year's strong monthly sales. It's hard, after all, to keep posting double-digit comparable-store sales ad infinitum. (Though some retailers, like

Talbots

(TLB)

and teen-favorite

Hot Topic

(HOTT)

are

chugging along quite nicely.)

Retailers are also failing to offer what analysts call "compelling fashion." At this point in the economic cycle, very few people really

need

anything. They've got the DVD player, the polar-fleece wardrobe, the G.I. Joe with the kung-fu grip. So it's up to the retailers and manufacturers to come up with new doodads and fads that will make us want to spend our money. Last year the must-haves were, depending on the audience, pashmina scarves and Pokemon. This holiday season, there's not much out there -- the scooter craze peaked this fall, while the PlayStation 2 is simply in too short supply. On the apparel side, sweaters and leather pants now featured in specialty chains and department stores may be nice enough, but they're not likely to inspire a buying frenzy.

But it's not just that consumers are bored. They may also be a little nervous. The

Fed has raised interest rates. Oil prices are up. "Gas prices really rocked America," says C. Britt Beemer, chairman of

America's Research Group

, a research consultancy. "People said it would be no problem if they had to fill their tanks at $2 a gallon -- up until they actually had to do it."

The stock market's downturn has likely inspired some people to cut back on nonessentials -- a reverse wealth effect, if you will. Consumer confidence fell in October to its lowest level in a year.

What You'll Get

All these factors, taken together, suggest none-too-thrilling holiday sales. Moreover, with a lot of goods on the shelves, and a glut of stores at the mall, retailers are likely to fight hard for every dollar. That means discounting, which in turn means earnings trouble. That's what happened to Gap, which had to discount heavily to clear unpopular fall merchandise from its stores.

There's trouble on the cost side, too. Higher fuel prices don't just pare demand, they make it more expensive to cart stuff from a distribution center to a store. Higher wages also add to cost pressures on retailers. "From a profits perspective, it will be a very difficult Christmas and a very difficult new year," says Carl Steidtmann, chief retail economist with

PricewaterhouseCoopers

, in a recent

Retail Marketing Society

holiday forecast.

Those retailers that more than one analyst expects to show stronger-than-average sales this season include companies with recent monthly sales momentum, like

Kohl's

(KSS) - Get Report

and Talbots,

Gymboree

(GYMB)

and

Limited

(LTD)

.

AnnTaylor

(ANN)

has wavered recently, but it faces easy comparisons with last year.

Beemer thinks luxury goods will suffer the most. "The stock market isn't giving people the luxury to buy that $2,000 or $3,000 gift," he says. "I don't hear any more comments about how it's the perfect time to buy."

Thought You Were a Knockout

E-tailers face a somewhat different set of problems. Demand is still growing, albeit at slower rates than in the past, so an economic slowdown won't likely be quite as pronounced on the Web.

Jupiter Research

estimates online sales will rise 66% this year to $11.6 billion, compared with a more than 100% gain last year. And even as the market is growing, the competition is getting pruned;

Pets.com

(IPET)

and cosmetics retailer

Eve.com

are among the recent casualties.

Still, those e-tailers that remain have to reach profitability while continuing to grow their top lines by enough to justify their still-lofty valuations, and that could be tough. One likely result: an end to some of the holiday bargains seen last year. In fact, the holiday season could see far more discounting off-line than online as e-tailers start to pass along shipping costs and refuse to cut prices to the bone.

But there's actually some hope for investors in retail -- and, if there are any left, in e-tail. These dire fourth-quarter predictions may have already been discounted. With stocks trading at historically low levels and plenty of talk about gloom and doom, merely meeting lowered expectations could actually spark a this-wasn't-as-bad-as-it-could-have-been rally. In addition, monthly sales comparisons get easier heading into the first half of the year. And there has been a rotation into retail recently on the bet that the Fed is done cutting interest rates for the meantime and that the sector is bottoming out. (Witness the jump Gap shares took after the company warned about third-quarter earnings.)

And once retailers get into 2001, the focus shifts to the next year. Good news: Next holiday season, PricewaterhouseCoopers' Steidtmann thinks, is likely to be much better.