All eyes on store sales.

This season shoppers didn't have to wake from their slumber at 4 a.m. last Friday to capitalize on holiday bargains.

Much like the real estate sector is shifting toward a buyer's market, holiday shoppers now have the upper hand in striking a deal, as retailers have tried everything under the sun--zero percent financing, free shipping, gift card freebies, lay-a-way, and 20-40% discounts on most merchandise--to lure them into stores early. Time will tell whether it works.

"The thing that may save Christmas is that this is the most promotional holiday season we've ever seen," said Faith Hope Consolo, retail leasing and sales division chairman at Prudential Douglas Elliman. "I think that with all these incentives, people will come out."

Consolo said retailers are more sensitive to consumer needs than ever before. Even high-end stores like Sak's are offering major luxury labels at discounted prices. NoLita, the East Village and Lower East side have seen steady activity because of affordable, niche retailers; SoHo has had a steady flow of shoppers due to its international appeal; and Fifth Avenue remains the top-shopping corridor in the world, according to Cushman & Wakefield.

This season, the business strategy has been to attract the crowds early--long before Black Friday. According to a recent Jones Lang LaSalle report, stores like Macy's, Target and Wal-Mart began carrying seasonal items as early as late September to expedite holiday sales.

"This could be a great time for shoppers with all the offers and sales starting much earlier than usual ... retailers in the luxury goods or clothing markets and restaurants are providing some incredible offers to persuade these shoppers to spend beyond their necessities," said Greg Maloney, CEO and president of Jones Lang LaSalle Retail.

Retailers have had no choice but to slash prices and offer unprecedented incentives. According to the Conference Board, which has tracked consumer confidence for four decades, the consumer confidence index fell to 38 points in October, marking a 23% drop from the previous month and the lowest level on record.

In addition, the Commerce Department announced that retail sales plummeted to a record low in October, dropping 2.8% from the previous month and 4.1% from October 2007. To put the 2.8% sales drop in context, it surpassed the 2.7% decline in October 2001, which stemmed from the World Trade Center attacks. This time around, its troubles in Motor City that have exacerbated the lull in consumer spending, as Washington continues to debate a possible bailout for the ailing U.S. automobile industry.

And since consumer spending accounts for nearly 70% of the country's economic activity, or Gross Domestic Product, politicians have also talked about issuing a second Federal stimulus to the American people but, even if approved by Congress, those checks won't reach consumers before the end of the holiday season, leaving the task of stimulating consumer spending with the retailers, which have had to cut spending of their own and limit the stock on their shelves.

Owners of retail space have had to cut back and adjust as well.

"The asking rents on Madison Avenue got too high and, if you look at the last couple of years, the only companies signing leases there were jewelers," said Joel Isaacs, president of Isaacs and Company, who notes that even Manhattan's brightest retail markets are undergoing a correction.

Isaacs said the reality of retail space hasn't been as bleak as headlines suggest, as national brands commonly tap brokers a couple of years in advance to work on national rollouts. And Consolo agreed. While leases are taking longer to complete, retailers have recognized the generous concessions offered by landlords and remain committed to inking long-term leases.

"There's been no retrenching in the lease signing," Consolo said.

Consolo also noted that the real estate industry isn't always indicative of consumer spending. She said that while 2007 was a highly successful year in real estate, holiday sales were the lowest in five years.

Regardless, Isaacs anticipates shoppers of all socio-economic status will watch their wallets this season: "I'm hoping people will get out there for the bargains, but consumer confidence is such that people pretty much across the board are buying less."

According to Deloitte's 23rd annual holiday survey of retail spending trends, 60% say they will spend less this holiday season. The survey, which polls more than 13,000 consumers, shows that people plan to spend 6.5% less on holiday gifts this year, an average of $532. Of those polled, 81% said they will buy more merchandise on sale, 63% said they will buy lower priced items and 57% said they will use more coupons.

As a result, budget stores are expected to thrive. Retailers like Family Dollar and Dollar Tree have posted sales increases and seen company shares rise. Wholesalers like T.J. Maxx and B.J.'s are also taking advantage of a budget-themed holiday season. But some high-end retailers are holding their breath this year.

"They've got their fingers crossed," said Michael Hofmann, senior managing director at Colliers ABR.

Hofmann said now that the economic crisis has become global, hitting Europe particularly hard, luxury retailers can no longer rely on international buyers to carry sales. While the favorable conversion rate between the dollar and Euro precipitated an onslaught of European shoppers in Manhattan earlier this year, hotel cancellations are beginning to creep up and it's unclear whether the city can sustain such high numbers of visitors.

While New York retail profits have held steady, most companies have reported sales drops. News of continued layoffs will continue to be a downer to retailers, and holiday shopping here is also contingent on Wall Street bonuses, or a lack there of. On the upside, the Saturday before Christmas is expected to generate more sales than Black Friday, according to Consolo, and Hanukkah falls later in the year than usual.

But one this is certain in a volatile retail market: whatever happens this holiday season will set the tone heading into 2009--a year expected to be one of the most challenging the city has seen in quite some time.

"A big part of 2009 has its underpinnings in what goes on in November and December," said Hofmann. "And November and December are going to be very interesting months for New York."