NRF Chief Economist Jack Kleinhenz cited a strengthening employment picture and higher consumer confidence as reasons to be optimistic. But shoppers' lingering price sensitivity, as well as purchases of big-ticket items that reduce their discretionary dollars, will continue to weigh on the industry in the second half.
Shay also pointed to the bifurcation of the economic recovery, which has boosted confidence among home owners and those with stock market investments, but has lagged among low-income Americans. Earlier this month, executives at Family Dollar and Wal-Mart commented on how their customer bases have yet to recover.
"I think while we see positive signs for the second half of the year this remains a tough environment," Shay said.
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The organization's revised forecast comes as the back-to-school shopping season, the second-biggest selling season for the industry, is picking up. Last week NRF forecast total spending on back-to-school items will rise 3 percent to $74.9 billion this year, which it said is "good," but not "great."
According to the International Council of Shopping Centers, one-third of consumers have already started their back-to-school shopping—up from the 29 percent who had started at this time last year.
Looking forward, Shay predicted the remainder of the year, including the holiday season, will continue to be highly promotional.
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He said there will be winners and losers across every category, whether it be discount or luxury, and the retailers who successfully integrate their online and in-store sales, select the right merchandise and sell it at the right price, and offer a high quality of service will come out on top.
"All of that goes back to creating a sense of loyalty and building a relationship with your customer," he said.
—By CNBC's Krystina Gustafson
Correction: This article has been updated to reflect comments from an executive at Family Dollar.