As the clock ticks, retail traffic continues slide

Brick-and-mortar retailers saw no signs of relief last week, as store traffic in the final week before Christmas posted the third straight week of double-digit declines, according to the most recent report from ShopperTrak.

According to the analytics firm, traffic for the week ended Dec. 22—which included the crucial final weekend before Christmas—was down 21.2 percent year over year. The first two weeks of December saw double-digit decreases, which trailed a 4 percent decline over Black Friday weekend, it said.

In-store sales fell 3.1 percent from the same week in 2012, ShopperTrak added.

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"I think the Black Friday and Thanksgiving Day sales took a lot of energy out of the consumer," said ShopperTrak founder Bill Martin.

"We still have some days left to go—there could be some ground made up. [Monday] was an important day, one of the top five days of the year," he said, adding that Dec. 26 is the seventh-busiest sales day. Strong gift card sales could push some buying until after the holiday, which could be vital days to the success of the season.

(Read more: Bargain-hungry holiday shoppers buy less on last weekend)

"We're still looking at 2.4 percent [gain] for the holiday season, even though we're seeing some softness in December," Martin said.

But the picture appears bleak for retailers. Many were expecting to post big numbers this past weekend, hoping that shoppers had delayed their buying amid a shorter holiday calendar. Earlier in the season, ShopperTrak had said that Friday, Saturday and Sunday would rank among the busiest days of the shopping season.

Weak traffic and tight consumer spending have led many retailers to aggressively discount merchandise and remain open at all hours. In many cases, efforts have led to promotions that matched or exceeded deals on Black Friday weekend.

Morgan Stanley analyst Kimberly Greenberger said that half of the retailers she covers offered whole-store discounts, compared with only 35 percent last year. Among those were teen retailer Abercrombie & Fitch, Express and Ann Taylor, which gave shoppers 50 percent off their entire purchase.

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"We think business picked up strongly this past weekend, as anticipated, but total holiday sales are still trending below plan," Greenberger said in a note. "While week three didn't reveal price reductions implying all-out panic, there weren't many positive signs, either."

Wells Fargo analyst Paul Lejuez noted that although he thought the weekend seemed busy, it had a lot to make up for—namely, snow and ice that hit the Northeast and Midwest in the prior week, and dramatic price cuts.

"We believe weaker merchandise margins will end up being more of an issue than weak sales," Lejuez said.

Greenberger sounded a similar note, saying that if sales over the last few days before Christmas aren't terrific, negative fourth-quarter earnings revisions could follow.

Some retailers are already looking past the mistletoe and eggnog, promoting their after-Christmas sales before shoppers even unwrap their gifts. Gap's Old Navy sent out email alerts that its after-holiday sales started Sunday, offering up to 75 percent off throughout the store. L Brands' Victoria's Secret also kicked off its semiannual sale online Monday.

Many analysts had predicted aggressive sales would continue in the post-holiday environment to snag extra transactions and round out solid December numbers.

"We expect the final two weeks of the month to be more promotional than most companies expected," Lejuez said.

It's not all bad

Online shopping has continued to be the bright spot in a challenging season. Analytics firm comScore last week said that as of Wednesday,10 days this season had eclipsed $1 billion in online spending.

Although those figures will not salvage sales for all brick-and-mortar retailers, SW Retail Advisors President Stacey Widlitz said physical stores with a strong online presence, such as Macy's, will be able to make up for weakness at the mall.

Retailers with a small Web operation will have a problem, she said. "They'll be stuck with extra inventories they have to clear."

(Read more: Retailers make last-ditch efforts)

Macy's; TJX; fast-fashion names such as H&M; and Gap, which saw increased traffic because of effective promotions, are emerging as the season's winners, said Dana Telsey, CEO of Telsey Advisory Group.

Greenberger said Michael Kors remains one of the strongest names and that aggressive promotions across key divisions at Limited Brands and Gap could lead to a solid December for those companies.

Joe Feldman at Telsey Advisory Group said Best Buy and GameStop should also post strong numbers.

"I think the video game console cycle is certainly helping, but there's demand for smartphones, for tablets, for TVs—everything related to that," he said.

On the flip side, Greenberger said heavy discounting at Chico's did not appear to resonate as well with shoppers.

Lejuez at Wells Fargo said the teen retail sector continued to suffer. American Eagle and Abercrombie's Hollister performed better than Aéropostale, he said, but added that "better is only a relative term."

What's more, although J.C. Penney did get some action from its doorbuster promotions, Lejuez said the company's November same-store sales increase of 10 percent is likely as good as it will get in its fiscal fourth quarter.

Things are also tough at Target. Telsey said the retailer was seeing a reaction to its revelation last week that a data breach had involved the information of more than 40 million credit and debit card accounts used in its stores.

"It had to give Wal-Mart an advantage," she said.

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs. CNBC's Patti Domm and Nikole Yinger contributed to this report.