How to Save the Most While Holiday Shopping

As early as October, Wal-Mart started slashing prices on 15,000 items, offering a series of "Black Friday deals" well before people bought their Thanksgiving turkeys. In similar fashion, Sears held a VIP event on Nov. 11, promising an added 10% in discounts, while Toys 'R' Us's web site slashed prices on some of the hottest holiday toys by as much as 50%.

Retailers are facing their worst holiday season in five years, according to the National Retail Federation, a trade group. Sales are expected to inch up just 4%, to $474.5 billion, compared with a 4.6% increase last year. But that's not small change: An extra 0.6% in sales this year would pull in an additional $2.7 billion. The drop is due largely to declining consumer confidence, a weakened housing market and credit fallout from the subprime lending crisis.

But don't head to the mall thinking you're going to walk out with steals just yet. The discounts may be offered earlier this year, but they aren't necessarily bigger or better. "It's a little more hype than reality," says Edgar Dworsky, editor of Consumer World.

In fact, most of these early specials are a result of increased marketing, says Dan Horne, an associate professor of marketing at Providence College. Retailers are just more aggressively advertising deals and products that they would have offered anyway — all in an effort to get you in the door. "It's all about driving your behavior," he says. "Anything that encourages return trips [to the store] is huge this time of year."

Of course, there are still holiday deals to be had. But rather than blindly buying up items now because sales are starting early, you should be more strategic. Here's how to take advantage of retailer desperation this holiday season:

Consider a store credit card. Retailers are offering an average on-the-spot discount of 20% to new cardholders this holiday season, compared with the traditional 10% to 15% offered at other points in the year, says John Ulzheimer, author of "You're Nothing but a Number," a book about credit scores. There are also additional discounts for subsequent use. Kohl's, for example, offers 10% off when you open and use your store card, with bonuses of another 5% to 20% during its weekly sales.

But don't leap at store credit-card offers unless you plan on shopping at that particular store often, without carrying a balance (APRs on store cards easily top 20%). You should also be making a significant enough purchase to warrant the temporary ding on your credit report that comes with opening a new account. "You're essentially using your credit report as a 20% off coupon," Ulzheimer warns. "Long after the discount has been forgotten, that little [credit inquiry] mark sticks around."

Sign up for email newsletters and updates. According to a survey by price comparison site BizRate, 59% of retailers plan to increase the number of sale and promotional emails they send out this holiday season. VIP sales, as well as friends and family events, are particularly hot, says Dworsky. Some invite-only events require an RSVP; others are open to anyone who receives the email. Ann Taylor is offering a 25% Friends & Family discount Nov. 15-18, while retailer New York & Company is hosting a private event in New York City on Nov. 15, with $20-off coupons for attendees.

Join rewards programs. If you're part of a store's reward program, then special deals and exclusive coupons offered solely to members can help cut your bill even more. Members of Barnes & Noble's program (cost: $25 a year), for example, gained access to the bookseller's annual 40% off Winter Sale on Nov. 1 — four days before everyone else. Best Buy is offering its rewards club members (no cost to join) a choice of five bonus reward options for all purchases made through Dec. 22, including double points when shopping before 11 a.m., triple points on select brands, or point value donation to Toys for Teens. (Typically, you get one point per $1 spent. For every 250 points, you earn a $5 reward certificate.)

Shop online. Any in-store slowdowns are unlikely to affect online sales, which are expected to increase 21% this year to $33 billion, according to Forrester Research, a market research firm. That's because retailers are beefing up their online deals, most notably adding coupon codes and extending free shipping. L.L. Bean, jeweler Blue Nile and Gap Brands' shoe store Piperlime, for example, are all offering free shipping through the holiday season, with no minimum-order requirement.

Watch for gift-card promotions. "All indications are that consumers are going to be using gift cards a lot this year," says Horne of Providence College. Nearly 57% of consumers are expected to purchase them, to the tune of $26.3 billion nationwide — a 6% increase from last year, according to the NRF. Look for more promotions offering rewards for you, the buyer of the card, as a way to get you to return to the store, Horne predicts. Shoe retailer DSW is offering a $10 bonus gift card for use Jan. 14 through Feb. 3, with the purchase of a $50 gift card. Toys 'R' Us is giving away a $5 card with every $30 Transformers toy purchase, while Best Buy is giving $10 cards to those who buy the "Spider-Man 3" DVD and videogame.

Holiday Credit Card Deals

Retailers aren't the only ones offering deals leading up to the December holidays. "Any kind of forecast that affects consumers' holiday spending is also going to affect credit-card companies' bottom line," says Curtis Arnold, founder of CardRatings.com. It's not just about building your balance, either. If consumers aren't using their cards as often, issuers get fewer transaction fees from merchants. "Anything they can do to entice members to spend more, they'll do," says Arnold.

Deals this year don't go much beyond the standards of reward-point bonuses, lower APRs and free gift cards — there are just more offers altogether. Here are a few:

American Airlines: Link to your favorite retailers through the airline's eShopping mall and pay with your AAdvantage MasterCard to earn double frequent-flier miles through Dec. 31.

American Express: Earn triple reward points on purchases made at your favorite retailers when you shop through the card issuer's online Bonus Points Mall. Promotion ends Dec. 31.

Citibank: Citi Premier Pass cardholders get an extra Thank You Point per $1 spent at electronics, apparel and department stores through Dec. 31. Select Citi Professional cardholders receive a 0% APR on purchases through mid-2008.

Discover: Earn a $20 Discover-brand gift card for every $200 of holiday gift receipts (paid for with a Discover card, naturally) that you turn in at the local mall's Discover kiosk through Dec. 31.

No enticing offers from your current lenders? Call up and ask, advises Ulzheimer. Dangle the carrot of holiday shopping, and credit-card issuers may be more apt to offer a lower APR or a credit line increase. "An extra $1,000 to $2,000 is standard," he says. Think of it as a safeguard for your credit score, which suffers the more your balances creep toward your credit limit.