Shoppers also showed signs they will do more of their spending after December 25 than they did in the same period last year in the hopes of snagging even more deals.

"We expect the next two weeks to pick up a lot of the slack," Topeka Capital Markets analyst Dorothy Lakner wrote in a note.

Analytics firm RetailNext estimated on Sunday that U.S. retail sales fell by a mid-single-digit percentage at brick-and-mortar stores on Friday and Saturday, two of the four most important shopping days of the season, compared with the same days last year.

That does not include online sales, which have been strong.

The number of visits to stores fell 7 percent on Friday and Saturday, RetailNext said.

Analysts have said this is turning out to be the most competitive holiday season since the recession, forcing retailers to ramp up the promotions. The season generates 30 percent of sales and 40 percent of profits for many stores.

"I'm doing my shopping on a budget, which is why I'm digging through the clearance bin," said Katrina Attis, 25, as she shopped on Sunday at a J.C. Penney Co Inc (>> J.C. Penney Company, Inc.) store in a mall in Elmhurst, New York.

Before Christmas, Attis will focus on her immediate family. For herself and other members of her family, she will shop next week when she expects bigger bargains.

"Retailers recognize that consumers will wait as long as they need to," said Charles O'Shea, senior analyst at Moody's Investors Service, who noted bigger discounts this weekend than in the corresponding weekend in 2012 as he did store checks in various cities.

The problem is particularly acute for specialty apparel retailers, O'Shea added, pointing to teen apparel chain Abercrombie & Fitch (>> Abercrombie & Fitch Co.) as one of the stores with the most noticeable increases in price cuts.

Rival Aeropostale Inc (>> Aeropostale Inc), which is trying to stanch deep sales declines, was touting up to 70 percent off everything in its stores on Sunday.

While electronics chains have benefited from best-selling items like Microsoft Corp's (>> Microsoft Corporation) Xbox One video-game console and Sony Corp's (>> SONY CORPORATION) rival product PlayStation 4, clothing has been a harder sell, he said.

No. 3 U.S. retailer Target Corp (>> Target Corporation) suffered reduced customer traffic over the busiest shopping weekends of the year in the wake of a massive data breach, the Wall Street Journal reported on Sunday, citing retail consultancy Customer Growth Partners LLC. (http://link.reuters.com/zyg65v)

Hackers stole data from up to 40 million credit and debit cards of shoppers who visited Target stores during the first three weeks of the holiday season in the second-largest such breach reported by a U.S. retailer.

SOME CHEER

Still, some retailers seem to be faring well. Chad Hastings, the general manager of Town East Mall in Mesquite, Texas, said the department stores in his mall told him sales this weekend were better than expected. The mall is anchored by Penney, Macy's Inc (>> Macy's, Inc.), Dillard's Inc (>> Dillard's, Inc.) and Sears (>> Sears Holdings Corp).

Lakner said she expects Tiffany & Co (>> Tiffany & Co.), Fossil Group Inc (>> Fossil Group Inc) and apparel retailers Lululemon Athletica Inc (>> Lululemon Athletica inc.) and Zumiez Inc (>> Zumiez Inc.) to do better than others.

"With compelling new collections like Ziegfeld, some old favourites like Keys in resurgence and hot trends such as coloured diamonds, not to mention benefits from lower raw materials prices, we think (Tiffany) should be a standout for holiday."

The analyst also said Fossil stands to benefit as it has a strong portfolio of watch brands, which include Michael Kors (>> Michael Kors Holdings Ltd), Marc Jacobs and Burberry (>> Burberry Group plc).

Store checks showed Lululemon showed continued popularity amongst its core female customers while the colder weather has helped Zumiez, Lakner said. The company sells snowboards and winter sportswear.

Retailers caught a break from Mother Nature. Despite a winter storm that hit major Midwestern markets such as Chicago and Detroit, no event was severe enough to disrupt holiday shopping in any part of the country, said Evan Gold, a senior vice president at Planalytics, a weather consulting firm in Berwyn, Pennsylvania.

Gold predicted no disruptions in the last two days before Christmas.

Experts expect the promotions to continue until the very end of the season in January.

"Without question, the shopper is in the driver's seat," said John Yozzo, a managing director at FTI Consulting in New York.

(Additional reporting by Siddharth Cavale; Editing by Jan Paschal and Joyjeet Das)

By Phil Wahba