Dec. 19 (Bloomberg) -- Macy's will keep its East Coast stores open until midnight starting tomorrow to lure shoppers. Sears, Roebuck & Co. is promoting ``The Big Finish'' sale with at least 50 percent off jewelry, cameras and video recorders.

U.S. department stores are fighting to win sales in the final stretch of the holiday season. The companies have turned to price cuts and added incentives such as express gift wrapping to compete with Wal-Mart Stores Inc., which spurred sales in November by offering large discounts.

``This last week is going to be critical particularly for those retailers that have gotten off to a slow start,'' Kim Picciola, a retail industry analyst with Morningstar Investment Services in Chicago, said in a Dec. 15 interview. ``We expect retailers to step up their levels of promotional activity.''

Department stores including Federated Department Stores Inc. and Kohl's Corp. will likely report an average sales gain of 2 percent for the season, according to the International Council of Shopping Centers. The ICSC says luxury retailers including Saks Inc. will report sales increases of 4.5 percent, while discount stores such as Target Corp. will post advances of 3.5 percent to 4 percent in a period that accounts for about a quarter of retailers' annual revenue.

Struggling to Compete

Between the Nov. 1 start of the Christmas shopping season and Friday's close, shares of Federated, owner of Macy's and Bloomingdales, have fallen 6.7 percent and Kohl's have declined 4 percent. By contrast, Wal-Mart has gained 4.9 percent during the period.

Wal-Mart shares fell 31 cents to $48.96 at 4:15 p.m. in New York Stock Exchange composite trading. Federated shares fell 19 cents to $64.78. Kohl's gained 60 cents to $46.28.

ShopperTrak RCT Corp. said today sales for the week ended Dec. 17, increased 2.1 percent over a year ago. The Chicago-based company measures mall traffic with more than 40,000 video devices. In the previous week, ShopperTrak reported a decline of 8.6 percent from a year ago. Target said in a recorded call today that its December sales were rising in line with its forecast of a 4 percent to 5 percent gain.

Department stores have been struggling for years to find the right mix of merchandise as competition from discounters and specialized apparel retailers, such as Abercrombie & Fitch Co., has intensified.

Wal-Mart's Strategy

Federated, the second-largest department store operator, said same-store sales fell 3.4 percent in November, the most in more than two years. It forecast a same-store sales gain of 1 percent to 2 percent for the fourth quarter. Its final quarter represented 32 percent of its annual sales last year.

The Cincinnati-based company and its competitors are using promotions to boost sales. Macy's has slashed prices on some apparel by as much as 60 percent. J.C. Penney Co. offered a 10- carat gold, 1/2-carat diamond ring for $99 for five hours on Dec. 17. It regularly costs $336.

Kohl's got a jump with midnight closings starting Dec. 16 and Dec. 17. It will have extended store hours through the end of the week.

The National Retail Federation forecasts a total sales gain of 6 percent for the November-December period, the second- biggest increase since 1999.

Department Stores

Mid-priced department stores faced heightened competition when Bentonville, Arkansas-based Wal-Mart, the world's largest retailer, unveiled aggressive markdowns on the day after Thanksgiving, dubbed Black Friday because it is typically the point at which retailers become profitable for the year.

``The trend has been big Black Friday, lull in the action, big push the week before,'' Christmas, said Dan Poole, who helps manage about $34 billion at Cleveland-based National City Corp., including shares of Federated.

``I don't really see anybody dropping the ball this year or doing particularly well,'' said Poole. With some of the biggest selling days ahead, it isn't yet clear whether retailers will have to make margin-eroding price cuts to snag shoppers.

The ICSC's department store index rose 0.6 percent in November. It does not include No. 1 Sears Holding Corp., which does not report monthly sales numbers. Including Sears would make the number smaller, said Mike Niemira, chief economist of the New York-based trade group.

Target

Discounters such as Target are winning shoppers with new private brands. In October, Wal-Mart introduced the Metro 7 apparel line, for fashion-conscious women over 25, in 500 stores.

``We have more and more retailers chasing a fixed amount of dollars on the part of the consumers,'' Alan Rifkin, an analyst with Lehman Brothers, said in an interview Dec. 12. ``It is a zero-sum game.''

Specialty retailers are also offering trendier merchandise. Abercrombie & Fitch Co., which sells casual clothing for teenagers and college students, has been drawing customers with its $175 destroyed-style jeans and has posted same-store sales gains of over 20 percent each month since May.

Middle-income consumers also are attracted by handbags and accessories at higher-end stores such as Nordstrom Inc. and Neiman Marcus Group Inc.

Department stores have responded by adding more exclusive branded merchandise such as the Candie's clothing line at Kohl's and added private-label apparel such as Federated's INC line.

J.C. Penney

J.C. Penney's improved private merchandise, including its Arizona line for younger shoppers, has helped it stage a turnaround. The Plano, Texas-based company said Nov. 15 that third-quarter net income rose 57 percent on sales of private- label clothing.

Jane Hali, a New York-based fashion consultant, complained on a Citigroup conference call earlier this year of the ``sea of sameness'' at many department stores. Retailers had relied on large apparel vendors such as Liz Claiborne Inc. and Polo Ralph Lauren Corp. for their merchandise.

Department stores' average monthly sales rose 1.6 percent last year, and fell 1 percent in 2003, according to the ICSC. Such sluggish sales have forced the department stores into a wave of consolidation.

Federated bought May Department Stores Co. for $11 billion in August. Kmart Holding Corp. bought Sears, Roebuck & Co. in March and Chairman Edward Lampert has taken more control of merchandising and reduced discounts.

Michelle Tan, an analyst with UBS Securities, sees a brighter future for the mid-priced stores. The consolidation- driven closings will put market share up for grabs, and the expansion of the top specialty retailers is slowing, she wrote in a Dec. 6 report.

``Mall-based department stores should maintain modest top- line growth over the longer term,'' she wrote.

To contact the reporter on this story: Cotten Timberlake in New York at ctimberlake@bloomberg.net; Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: December 19, 2005 16:55 EST