In search of deals, ease

NEW YORK - Holiday shoppers were more than willing to spend during the holiday season, if they saw big discounts or were shopping online.

Sales rose 3.8 percent from last year for November and December combined, according to the National Retail Federation's analysis of federal figures. That was a healthy gain in a season that kept merchants worried right up until Christmas as people held off on spending.

That caution and increased online shopping made the holiday less festive at the mall. Shoppers stayed away from many traditional destinations like department stores and electronics stores.

The sales increase came in just shy of the trade group's forecast of a 3.9 percent gain. It was better than the 3.5 percent increase in 2012 and the 3.3 percent average for the past 10 years.

"It was a knock-down, drag-out battle between retailers to see who could discount the most to generate the most traffic," said Ken Perkins, president of Retail Metrics LLC, a research firm.

For retailers, those discounts came straight out of their profits. Many have cut their forecasts for the fourth quarter, and profits are expected to be the weakest since second quarter of 2009, when the economy was coming out of the Great Recession.

Perkins estimates that fourth-quarter profits will fall 0.7 percent from last year, the first decline since a 6.7 percent drop seen during the second quarter of 2009, according to his tally of 120 retailers.

January is already off to a slow start. Some stores like Express Inc. and Lululemon Athleta have said weak January sales are compounding their holiday-season woes. Express said it plans to continue heavy sales promotions, which it expects to last through the month.

"The consumer is fatigued and taking a break," Perkins said.

Retailers' fiscal year typically ends in late January or early February to include the pre-Christmas and post-Christmas seasons. A lot is at stake. November and December account for 20 percent of the retail industry's annual sales, on average.

Jack Kleinhenz, economist at the National Retail Federation, agrees that the holiday season was challenging.

"It ended on a solid pace, but it was tempered by consumers' selectivity and preference to discounts," he said.

The National Retail Federation's figures include online sales but exclude sales at automotive dealers, gas stations and restaurants

They're extrapolated from Commerce Department retail sales figures, which were also released Tuesday.

That report showed retail sales rose 0.2 percent in December compared with November. That followed strong gains in October and November, helped by healthy auto sales.

According to the National Retail Federation's analysis of holiday business, sales rose 3 percent in November and 4.6 percent in December from a year earlier.

The results highlight how Americans' shopping habits are changing, posing challenges for retailers in 2014.

Over the past few months, people have been buying cars and appliances, as they take advantage of lower interest rates and replace worn-out models. That has left less room to buy more discretionary items. In a stronger economy, people could do both.

Another issue for traditional retailers: shoppers' continuing shift to online shopping.

David Haskins, 32, of Greenville, N.C. did almost all his buying online this holiday, up from about half last year. He avoided department stores and bought a camera at Best Buy only because it matched an online price that was $200 cheaper.

Most of his shopping was done at Amazon.com, where he joined as a Prime member to get free shipping.

"When you are looking for something you need, you can just lay in bed and pull up a phone app," Haskins said. But he said he doesn't spend willy-nilly.

"I do a lot of research. I know exactly what I want before I make a purchase."

Haskins' shopping habits played out in the December figures.

Excluding spending on autos, gas and building supplies, retail sales rose a solid 0.7 percent in December from November. But the report shows less spending at traditional holiday outlets. Online sales grew 1.4 percent in December compared with the previous month and 14 percent from last year.

But furniture and electronic purchases fell last month. And sales at department stores fell 0.7 percent in December from November - and 3.3 percent for the full year.

For all of 2013, total retail sales rose 4.2 percent, the weakest gain in four years.