Dec. 9 (Bloomberg) -- Sales at U.S. retailers rose last week after chains used discounts on clothing and consumer electronics to lure customers and avoid what might be the worst holiday- shopping season in four decades.

Sales at stores open at least a year increased 0.4 percent in the seven days through Dec. 6 from a year earlier, the International Council of Shopping Centers and Goldman Sachs Group Inc. said today in a joint statement.

Higher food prices and declining home values helped push the U.S. economy into a recession, stalling consumer spending. Retailers may need to offer steeper markdowns in the final weeks before Christmas to lure shoppers holding out for bigger discounts after 2-for-1 sweaters and flat-panel televisions at 40 percent off failed to get them into stores.

“The movie title for this season is ‘The Grinch Who Stole Gross Margin,’” Joel Bines, a director in the retail practice at consultant AlixPartners LLC, said today in a telephone interview. “The worry now is that this incredibly deep and incredibly pervasive promotional activity has not been enough to really drive an increase in consumption.”

Purchases at existing locations may rise as much as 1 percent in December, as shoppers wait until the last minute to buy holiday gifts, the New York-based ICSC said. Sales during the final two months of the year may decline as much as 1 percent, the largest drop since 1969, when the ICSC starting tracking data, said Michael Niemira, the group’s chief economist.

“The tough economic and retail environment, which continued into early December, is likely to dominate the full month’s sales performance as well,” Niemira said in today’s statement.

Volumes Over Margins

The Standard & Poor’s 500 Retailing Index, with 27 companies, has lost 32 percent this year.

Wal-Mart Stores Inc., which isn’t part of the index, has gained 17 percent in 2008 as consumers sought discounted groceries and basic necessities. Retailers may make a third or more of their annual income during the holidays.

The ICSC said last week that November same-store sales declined 2.7 percent. J.C. Penney Co., Nordstrom Inc. and Gap Inc. all reported drops of 10 percent or more.

The Johnson Redbook Index, another measure of retail performance, fell 0.8 percent last week compared with a year earlier.

“There is no doubt we are in an environment where retailers are trading margins for volumes,” Amy Noblin, a retail analyst at Pali Capital Inc. in Larkspur, California, said in a research note yesterday. “The question remains how deeply the adverse effects will be.”

Increased discounts may result in narrower margins, hurting profit at the expense of generating higher sales.

Comparable-store sales are considered by some investors to be the best measure of results because they exclude the effect of location openings and closings in the past year.

To contact the reporter on this story: Allison Abell Schwartz in New York at aabell@bloomberg.net.

Last Updated: December 9, 2008 16:13 EST