"We had to take a step back and reorganize our priorities and realize that it's not all about money and gifts," said Michelle Leary, 31, a mother of four from Wakefield, Mass. Her husband, an office manager at a construction company, was laid off three weeks ago.
"It made us take a look back and see what was really important to us," Leary said.
Over the past year, shoppers have drastically changed their spending habits in ways not seen since the 1970s, switching to store brands and discounters like Wal-Mart. During the holiday shopping season, they cut back on their spending, took advantage of big discounts and bought practical gifts.
"Last year, when things were a little bit better. If there was stupid little things you think someone might like, you grab it for them," said Bruce Guckert, 23, a carpenter from Everett, Mass., who was out shopping on Wednesday. "This year, you get them things they might need, or want more than others."
One of the big worries for stores is what to do with the mounds of items they still have to sell. If 75 percent off before Dec. 25 didn't make people splurge, will even bigger deals afterward do the trick? Another problem is that shoppers shunned gift cards this season. That means they are less likely to return to the stores after the holiday.
"The new consumer mantra for this coming year is: If I don't need it, I won't buy it," said C. Britt Beemer, chairman of America's Research Group. "America has going from a consuming society to a planned-buying society. Everything is focused on saving more money."
The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.
A number of stores struggled just to make it to Christmas. Circuit City Stores filed for bankruptcy protection last month. It plans to keep operating, but KB Toys, which filed for bankruptcy protection earlier this month, has already begun to liquidate all of its stores and will shut down completely.
Finlay Fine Jewelry, which operates stores such as Bailey Banks & Biddle, warned a week ago that it may not have enough cash to operate through the end of its fiscal year on Jan. 31, and may have to "significantly curtail" its business.
In Christmases past, stores could rely on a surge before or after the holiday to help save the season. But this year, it was virtually over before it began as stores had to slash prices on holiday goods as soon as they hit the shelves.
Stores had a good start, fueled by bargain buying, but sales soon flattened. For the last weekend before Christmas, total retail sales fell 5 percent from a year earlier as winter storms kept people home, according to research firm ShopperTrak RCT.
Consumer spending fell for a fifth straight month in November, government data showed Wednesday, the longest weak stretch in half a century, while incomes fell and layoffs mounted. The climate is expected to get worse before it gets better.
Economists have kept lowering their holiday predictions. Michael P. Niemira, chief economist at the International Council of Shopping Centers, now expects sales at established stores for November and December will fall 1.5 percent to 2 percent from the year before - making it the weakest holiday season since at least 1969, when the index began.
A full picture of the holiday season will not be known until Jan. 8, when major retailers report their sales figures.
Stores desperate to pull in shoppers started deeply discounting holiday goods starting in November, but that is expected to mean lower profits.
Ken Perkins, president of research company RetailMetrics LLC, expects overall store profits for the fourth quarter - which for most stores runs through the end of January - to drop nearly 19 percent from the same period a year ago. He expects profits to tumble about 10 percent in the first quarter.
Niemira noted that Dec. 26 could offer "a good window on how the post-Christmas season may play out." But so far, the signs aren't encouraging.
Paige Wallington of Raleigh, N.C., was out looking for stocking stuffers Wednesday morning, but also found herself in the ornament section, where prices were as much as 60 percent off.
"Some for this Christmas, some for next," the 46-year-old collections officer said while eyeing a snow globe and carrying a few bags of clothing. "I'm shopping while I still have a job."
Associated Press Writer Jay Lindsay in Saugus, Mass., Barbara Rodriguez in Raleigh, N.C., Ben Greene in Baltimore and Todd Richmond in Madison, Wis., contributed to this report.
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