Dec. 27 (Bloomberg) -- Dillard's Inc., Macy's Inc. and Home Depot Inc. slashed prices the day after Christmas as U.S. retailers attempted to avoid the worst holiday-shopping season since 2002.

Spending surges after the Thanksgiving holiday and last weekend weren't enough to boost holiday buying as consumers facing $3-a-gallon gasoline and declining home values limited gift purchases. The International Council of Shopping Centers lowered its November and December sales forecast yesterday.

``People should expect dramatic discounts, and in some cases, desperation discounts,'' Burt Flickinger, managing director at Strategic Resource Group, said yesterday in an interview on Bloomberg Radio.

Saks Inc. held a one-day, 70 percent-off sale yesterday on designer clothes. Dillard's is selling women's cashmere sweaters for 40 percent off. Polo Ralph Lauren Corp. was selling handbags at almost a 60 percent discount.

Macy's fell 91 cents, or 3.5 percent, to $25.04 at 4:01 p.m. in New York Stock Exchange composite trading, while Dillard's dropped 18 cents to $18.97. The 31-member Standard & Poor's 500 Retailing Index decreased 1 percent and has declined 11 percent since the beginning of November.

Retailers count on the last two months of the year for a fifth of their revenue.

Macy's was holding an ``After-Christmas Sale,'' with markdowns of 50 percent to 75 percent throughout its stores. J.C. Penney Co. marked down women's boots, originally $60 to $110, to $29.99. Home Depot's Expo Design Center chain offered as much as 75 percent off prices throughout the store.

Retail Discounts

Macy's spokesman Jim Sluzewski declined to comment on holiday results, as did spokesmen for Saks Inc., Dillard's, Circuit City, Home Depot, J.C. Penney, Lowe's Cos. and Sears Holdings Corp., the largest U.S. department-store chain.

Target Corp., the second-largest U.S. discount chain, said Dec. 24 that sales at stores open at last a year may drop this month. The retailer, which cut prices to draw shoppers and match larger Wal-Mart Stores Inc.'s discounts, had predicted a gain of as much as 5 percent.

The industry's same-store sales rose 2.8 percent last week from a year earlier, the ICSC and UBS Securities LLC said yesterday in a joint statement. The results prompted the group to lower its forecast for November and December sales growth to ``a tad below'' the 2.5 percent it was predicting.

Target, Wal-Mart and most retailers will report same-store sales on Jan. 10.

Shoppers' Health

Retailers did a poor job gauging the health of shoppers, said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail-consulting firm.

``I thought Wal-Mart played it smart,'' Davidowitz said in a Bloomberg Television interview yesterday. ``They took a price leadership position and established themselves.''

Randy Robinson, a route driver for an alcohol distributor, said in an interview he was spending $500 less this Christmas, though he earned more money this year.

``I've got more money, but everything else is more expensive,'' said Robinson, 40, a resident of Douglasville, Georgia. ``I'm just cutting back. I'm trying to stick to the budget. I hate being broke after Christmas.''

Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, the S&P/Case-Shiller home- price index showed yesterday. Declining values pose a risk to consumer spending by making it harder for owners to tap home equity for extra cash.

Fuel, Milk

Higher costs for fuel and milk have also caused shoppers to pull back. That led the Washington-based National Retail Federation to project that holiday sales in November and December may rise 4 percent, the slowest growth since 2002.

Sales rose 19 percent from Dec. 21 to Dec. 23 as U.S. shoppers took advantage of discounts and extended hours, Chicago-based ShopperTrak RCT Corp. said Dec. 24. The research firm maintained its forecast for a 3.6 percent gain during the final two months of 2007.

Even though consumers limited purchases of holiday gifts, the U.S. will avoid a recession next year as a ``stable'' job market keeps Americans spending, said Bear Stearns Cos. Chief Investment Strategist Jonathan Golub.

``It is increasingly clear that the U.S. consumer did not roll over during the holiday shopping season,'' Golub said yesterday. ``We do not believe a consumer-led recession is in the cards.''

Online spending growth outpaced total U.S. retail gains. Internet purchases from Nov. 1 through Dec. 21 increased 19 percent from a year earlier to $26.3 billion, ComScore Inc. said on Dec. 23.

Amazon.com Inc., the world's largest online retailer, said the 2007 holiday season was its ``best ever.'' The company didn't provide specific profit and sales figures.

Holiday purchases of gift cards may climb 25 percent to $35 billion this year, according to Archstone Consulting LLC.

Gift card redemptions probably peaked yesterday, a day that makes up almost 4 percent of holiday sales, said Strategic Resource's Flickinger.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: December 27, 2007 16:15 EST