The 2013 holiday shopping season may end up being remembered for its ugly sweaters and, for many retailers, even uglier discounts.
With growing online competition, no fashion must-haves and weak consumer confidence, most U.S. retailers will have to offer both big discounts and stellar service to get consumers to spend freely, according to retail analysts who joined Reuters reporters on visits to stores in New York, New Jersey, California and Illinois ahead of the holiday season.
"People are being a lot more selective in where they spend their money," said Wedbush analyst Gabriella Santaniello while touring the Westfield Topanga mall in Canoga Park, California.
To be sure, with online sales increasing, store visits provide only part of the picture. Still, a trip to the mall with a trained expert provides vital clues ahead of the holiday season, which usually accounts for almost half of retailers' profits.
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The battle for the consumer dollar is particularly intense in a year when taxes have risen, unemployment has remained stubbornly high, and confidence has taken a hit from the recent government shutdown and uncertainty over the introduction of President Barack Obama's healthcare reforms.
Offsetting those negatives has been the wealth impact of a rise in home prices and a rallying stock market, though that is more likely to help the luxury end of retailing.
Most industry estimates see sales growing modestly overall, with online retailers taking a bigger slice of the pie, and electronics stealing share from apparel.
Season of sweaters and Xboxes?
In a sign of intense competition, there has already been unprecedented price-cutting from the giant discount chain Wal-Mart Stores, earlier-than-usual deals from online goliath Amazon.com, and price-match promises from Best Buy, Target and others, even before the season's unofficial kickoff on Thanksgiving Day.
(Read more: App makers ready to cash in on holidays)
Wedbush's Santaniello is betting on Urban Outfitter, American Eagle Outfitters, and other purveyors of trendy sweaters featuring cutesy animals, phrases such as "totes amaze" (slang for totally amazing) in curly cursive, and "fair isle" patterns.
"This is going to be a Christmas of ugly sweaters. That's the hip thing now, bad sweaters are so cool," among 20- and 30-year olds, she said, eyeing an Urban Outfitters tan sweater with a pair of foxes knitted into the pattern of the garment, a technique known as intarsia.
New must-have gadgets such as Sony's PlayStation 4 and Microsoft's Xbox One gaming consoles and Apple's latest iPhones and iPads could take a bite out of other holiday gift purchases and hurt some apparel chains, according to analysts.
"There's a limited wallet, and there's going to be a lot of competition from outside the apparel space, which means teens are going to be spending much less money on clothes," said Bridget Weishaar, a retail analyst with Morningstar.
A visit to a Best Buy store in Chatham, New Jersey, gave analyst Scot Ciccarelli a reason to recommend the retailer's stock to investors this holiday.
(Read more: Retailers exporting this US staple: Black Friday)
At least four sales associates offered to help Ciccarelli within 20 minutes of entering the store, a huge improvement from last year, the analyst with RBC Capital Markets said.